By Nathalie Voit
U.S. natural gas futures soared over 14% on Wednesday, prompted by high heating demand amid expectations of a major winter storm to hit the U.S. over the weekend.
Natural gas prices began their steep upward climb on Jan. 6, closing at $3.81 per million British thermal units (MMBtu) to settle over one dollar higher at $4.86/MMBtu on Jan. 12.
The contract fell over 5% on Jan. 13 after opening at $4.79/MMBtu. However, prices for natural gas are still near a six-week future high.
“The heating demand outlook for [the] eastern-third of the U.S. has strengthened materially for this weekend and for the last week of January,” said Again Capital’s John Kilduff, referring to expectations of a severe cold front beginning Friday and below-normal temperatures starting Jan. 22.
“The weather has gone from being a non-factor or bearish factor all season to being meaningful, again, for prices and demand,” he added.
U.S. natural gas futures slid 36% during the fourth quarter of 2021, following a record year for gas prices. However, the contract is still nearly 25% up for 2022 and 50% higher year-over-year.
“Due to the cold weather and realistic worries about tighter supply, prices are moving higher across the North American complex,” said senior vice president and chief data analyst at OTC Global Holdings Campbell Faulkner, according to CNBC.
“Overall, there just isn’t the extremely slack supply of natural gas in the market that has been the prevailing trend over the past 10 years,” he added.
In conjunction with rising natural gas prices, wholesale electricity prices are expected to spike this winter.
“The cost of natural gas is a significant driver of electricity prices because it often acts as the marginal (highest cost) fuel of generating units that operators dispatch to supply electricity,” the U.S. Energy Information Administration (EIA) said in an analysis released Jan. 7.
However, the agency sees prices coming down in the long run. In its January Short-Term Energy Outlook, the EIA estimated Henry Hub spot prices to average $3.79/MMBtu in 2022 and $3.63/MMBtu in 2023.
“Although we expect natural prices to decline in 2022 and 2023 compared with 2021, prices in the forecast stay relatively high compared with recent years,” the EIA said.
The outlook expects natural gas prices to average $3.82/MMBtu for the year’s first quarter.