Flames from a burning pit near a well at the Bakken site. The main component of natural gas is methane, which is odorless when it comes out directly from the gas well. In addition to methane, natural gas usually contains other hydrocarbons such as ethane, propane, butane and pentanes.
Orjan F. Ellingvag | Corbis News | Getty Images
Natural gas prices have doubled this year and are expected to continue to rise, leading to higher heating bills in the winter for some consumers and higher costs for electricity services.
Natural gas is plentiful in the United States and has been cheap for years, so the price jump this year is very intense. It has also raised the stakes of companies specializing in natural gas production, such as EQT, Range Resources, Cabot Oil and Gas and Antero Resources.
In the futures market, the natural gas contract for October exceeded $ 5 per million British thermal units, or mmBtus, for the first time since February 2014. In addition to the demand for electricity and heating , natural gas is an important food for feed and is used in the processing of chemicals, fertilizers, paper and glass, among other products.
“We haven’t had reduced natural gas supplies for years. We’re looking at it this year,” said John Kilduff, a partner at Again Capital.
Natural gas prices have been caught in their perfect storm, with lower supply and growing demand. Prices rose, first, as unprecedented air conditioning demand sparked demand for air conditioning in the United States, especially in the Northwest. As a result, less gas was stored during the winter months, during the key summer injection period.
In addition, a colder-than-normal climate is added and prices may rise further. “Anything closer [or colder than] an average of a full standard deviation would likely cause a price increase that would destroy gas demand above $ 10 / mmBtu, “Goldman Sachs analysts note. Gas prices were so high in 2008.
Kilduff said natural gas is strongly tied to the economy and that for a long time prices did not matter. Now, utilities will pay more and so will some consumers who have real-time pricing systems. “You could easily see it coming in at $ 6 and you could see how it would go from $ 8 to $ 10,” he said. “Any cold weather outbreak in the first season will make this happen.”
Upward pressure on gas prices is global, and since the U.S. is an exporter, prices in North America are now more influenced by prices in other markets.
“We’ve seen it all last year with the pandemic. We saw natural gas prices around the world at $ 2. It was $ 2 here in the US, $ 2 in Europe and $ 2 in Asia,” Jack said. Fusco, CEO of Cheniere Energy. CNBC. “When economies began to decline and countries and companies around the world decided that natural gas was the preferred fuel for the transmission of clean energy, demand just skyrocketed.”
Fusco said prices for the same gas that is $ 5 in the U.S. are now $ 20 or more in Europe and Asia. He also said his company, which exports liquefied natural gas, sells 90% of its production over the next 20 years.
Now, the U.S. industry is also suffering lower production due to Hurricane Ida, with 77.3% of Mexico’s Gulf production still closed. According to the Energy Information Administration, the level of gas in US storage is 7.4% lower than the five-year average and 16.8% below last year’s level at the moment. .
The dynamics of rising demand and declining inventories have attracted investors to the stocks of natural gas producers, as well as the U.S. natural gas ETF.
“I look at the natural gas situation. Storage levels are well below historical standards,” said Leon Cooperman, president and CEO of the Omega Family Office. Cooperman told CNBC on Thursday that its most important positions are anti-energy market holdings.
Natural gas prices are rising as the Biden Administration puts pressure to achieve greater dependence on renewable energy in the electricity market. On Wednesday, the White House called for solar power to power nearly half of the electricity grid by 2050. It is now only 3% of the power supply.
But natural gas is likely to remain a major fuel for years to come. The EIA, according to its short-term outlook, said natural gas should provide 35% of electricity generation in 2021 and 34% in 2022. The government predicted that the average price of natural gas this year will be of $ 4.69 per mmBtus.
The EIA said the share of natural gas as a generation fuel will decrease over the next year due to the projected increase in renewable sources, but also coal.
“As a result of higher projected natural gas prices, the projected share of electricity generation from coal will rise from 20% in 2020 to close to 24% in both 2021 and 2022,” according to EIA. “The new additions of solar and wind power generation capacity are offset somewhat by the reduction in hydroelectric power generation this year, making the expected share of all renewable energy in northern electricity generation -American is 20% on average in 2021, roughly the same as last year, before increasing to 22% in 2022. “
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