Natural gas prices are trading at their highest levels in 14 years, buoyed by the European energy crisis and lackluster US output. The so-called bridge fuel has been on a tear in 2022, serving as the top-performing asset in global financial markets with a 180% year-to-date rally. While the meteoric surge in recent sessions will likely subside, it is safe to say that the commodity could firm well above $10 when Old Man Winter returns in the Northern Hemisphere. A lump of coal would be a nice Christmas gift, but the way the fuel source is performing in the futures arena, a cubic foot of natural gas would be a preferable present.
Natural Gas Prices to the Moon?
The main factor for the dramatic increase in natural gas prices is none other than Russia. The state-owned Gazprom announced that it would halt western flows to Europe through its Nord Stream 1 pipeline system for routine maintenance later this month. This prompted widespread concerns that the critical infrastructure piece would be shut down permanently, sending prices in US and European markets to impressive levels. The energy king noted that flows would return to 20% capacity, unchanged from current levels. But considering how Putin has effectively brought Europe to its knees over the last few months, the region’s anxiety is understandable.
(Photo by Jens Büttner/picture alliance via Getty Images)
This will inevitably force European buyers to look to the US for natural gas and pay a hefty premium. The challenge is competition as Asian and Latin American buyers will also demand more liquefied natural gas (LNG) from the US. At the same time, market analysts warn importers realize that US LNG operators are delaying critical maintenance to take advantage of higher international prices. In other words, these companies are running at maximum capacity with limited infrastructure. Therefore, it is almost inevitable that companies will need “to pull back the throttle and divert gas into storage,” notes Pat Rau, the Natural Gas Intelligence (NGI) director of strategy and research. He added: “Given where we are in the cycle, it may be too late to do that going into the heating season, but it may serve as a de facto form of storage once winter has begun.”
While the energy crisis primarily impacts Europe and soon-to-be Asia, the situation will also affect the United States in the coming months. The US indeed produces and ships enormous amounts of natural gas. However, as Liberty Nation has pointed out, it will be challenging to satisfy domestic and foreign demand this winter, especially if weather conditions repeat the pain endured earlier this year: frigid temperatures, massive snowfalls, and skyrocketing heating demand. Moreover, natural gas production levels have eased, sliding to about 92 billion cubic feet per day, down from the decade average of 102 billion cubic feet a day.
Put simply, the US will be unlikely to run out of natural gas – Energy Information Administration (EIA) data show inventories are about 350 billion cubic feet below the five-year average – but households will be paying higher utility bills. When the average US household is doling out 47% more for electricity than a year ago, millions of Americans, who are also struggling with broad-based inflationary pressures, may need to feel cold in their homes.
A Note About Crude Oil
Indeed, crude oil has taken a back seat this summer, despite the doom-and-gloom prognostications from Wall Street firms. But the world is not out of the woods just yet. West Texas Intermediate (WTI) and Brent prices have been surging in recent sessions, driven by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+. The cartel has reportedly considered production cuts in response to recession fears, and leaders are warning that if a new nuclear agreement with Iran is established, member countries could slash output even further. So, motorists may need to enjoy their $3.89-per-gallon gasoline for now because it might not last for much longer.
The Green Fetish Debacle
The energy situation in Europe is spiraling out of control. From the United Kingdom to France to Germany, electricity prices have been through the roof. Officials have transferred full responsibility to Russia and President Vladimir Putin, abandoning any culpability for today’s mess. But nations’ green fetish has been a significant factor in the financial pain Europeans are enduring. Indeed, leaders are tergiversating by proclaiming that natural gas is now environmentally friendly and that a rogue Tehran can be allowed to build a nuclear weapon as long as it pumps the world with oil. All of this could have been avoided if adults were in charge and policymakers acted mature enough to comprehend that it is impossible to transition from fossil fuels to windmills overnight. Unfortunately, it is too late as the world is slipping into a recession, inflation is a permanent fixture of the worldwide economy, and millions of households will be shivering this winter.
