Significant winter storms could push natural gas prices much higher.

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Natural gas is starting to show signs of life after its post-winter slumber – with prices climbing to levels not seen since February – just as the weather warms up for the summer and hurricane season in the United States. Atlantic begins.

The natural gas market is tight right now and “could get even tighter by the end of the year,” said Christin Redmond, global commodity analyst for Schneider Electric’s Energy and Sustainability departments. “The weather has been generally favorable, coming out of the coldest winter for a few years, and this summer also appears to be quite warm,” she said. High temperatures lead to increased use of air conditioners, increasing the demand for gas generators.

Natural gas prices so far this year hit $ 3.109 per million British thermal units on May 17, a three-month high. The $ 3 mark “seems to be the emotional benchmark where you see prices rebound,” says Steve Sinos, vice president of Mercatus Energy Advisors. “The demand for cooling in the summer may support prices in the short term,” he said, although so far the price increase “does not appear to be more than short-term volatility.” This, he adds, can “change quickly if demand persists and prevents storage from filling.”

The demand for natural gas tends to increase during the summer as energy use increases. But the need to replenish natural gas stocks in storage before winter, Sinos says, is “another source of demand.”

U.S. natural gas storage inventories stood at about 2.2 trillion cubic feet at the end of the week of May 21, within the historic five-year range, but down 381 billion cubic feet from a year ago, according to at the US Energy Information Administration. Inventories are expected to enter winter on a shortfall from the five-year average, so any significant winter storm “could push prices much higher,” Redmond said.

The Atlantic hurricane season officially began on June 1, with American forecasts a likely range of 13 to 20 named storms this year. Hurricanes have a much weaker effect on oil and gas markets than they did a decade ago, with a much smaller share of natural gas production coming from offshore drilling, but they can temporarily reduce supply. of about two billion cubic feet per day and eliminate some export volumes of liquid natural gas (LNG), says Redmond.

This year, “hurricanes have the potential to be net bearish” for prices, she said, as more than 90% of the 11 billion cubic feet per day of US LNG export capacity is on the Gulf Coast.

Yet in 2021, the 21% rise in natural gas prices is only half the nearly 42% rise in oil.

“Oil prices have dominated the news cycle so far this year, but there have been some interesting developments in the gas market,” said Sanjeeban Sarkar, chief materials editor at The Economist Intelligence Unit. “High natural gas prices have made coal a little more competitive in the United States”

the Energy Information Administration expects natural gas consumption in the United States to decline in 2021 0.7% from 2020, the decrease being partly due to the switch of electricity producers to coal from natural gas due to the rise in natural gas prices.

Natural gas was described as “a transition fuel” because it served as a transition away from coal, Sinos explains. The EIA, however, predicts that the share of US electricity produced from natural gas will average 35% this year, up from 39% in 2020, while the share of coal production is expected to rise to 24%. against 20% last year.

Over the medium term, natural gas prices are expected to remain close to the $ 3 mark and average just below that level this year, according to EIU’s Sarkar. “Climate initiatives will support gas demand in the medium term” as coal is phased out, but it “will take time to be implemented”.

Write to Myra P. Saefong at [email protected]

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