Natural Gas prices are up almost 100% from last year and on September 28th they touched $6.28 a dekatherm (DTH), a level seen back in 2008 when Natural Gas Prices (NYMEX) hit over $10 per DTH. In Europe is even worse as the gas prices have soared over 287% in the last 12 months and in the UK the gas futures are trading at £18.1/DTH ($24.96/DTH). Natural Gas is responsible for producing 35% of electricity in the US in 2021 so the increase in gas prices is affecting electric prices too. There are several factors that have contributed to what they are calling it “Gas Crisis”.
First is Low Level of inventories. Gas inventories in the US are 7.6% below the 5 year average and 16.8% lower than last year. In Europe storage is 37% full compared to 74% earlier this year. It is expected that at the end of the winter the storage might drop to 16%. These low levels of gas are very concerning if the winter will be cold that might lead huge price spikes at least to blackouts at the worst.
Second is un/natural disasters. In the US, the hurricane Ida, has shut down over 77% of production in Gulf of Mexico. In Europe, Russia, a huge supplier of Natural Gas, is using more gas themselves and exporting less. Europe doesn’t produce natural gas so they depend on imports from Russia, Norway and LNG (Liquified Natural Gas) from the US. Because of this dependency, EU has bet on clean energy such as wind power, which has been affected due to non-windy weather this summer, and hydro power in Southern Europe which saw major draught season. Therefore Europe has to depend on natural gas to produce electricity. Also in the UK a major fire knocked out a high-voltage power cable that export electric from the UK to France and the peak times electric prices moved from £40/MWH to £2500/MWH.
Finally is huge demand. Due to the economies opening up, the demand for natural gas has been very high. Also the hot summer not only affected the supply of green energy (hydro and wind) but also increased demand since customers were using air conditioning on top of the demand from commercial and industrial clients.
The US has been an isolated island when it came to natural gas, however, in the last few years it has increased exports of LNG and its prices are correlating more with those of Asia and Europe. Therefore a crisis in Europe and Asia does affect US Natural Gas prices. Nevertheless, weather is extremely important because it will dictate the short term prices of natural gas: it will be a warm winter, prices are predicted to be around $3/DTH, if the winter is normal prices will be on the $5/DTH range and if it is a cold winter then prices might hit $8/DTH – $10/DTH.
So with natural gas prices shooting up almost every week what can clients do to lower their operating expenses? The natural gas crisis seems to be lasting until this Winter is over and depending on temperatures this will last until April. The best strategy would be to fix the rate for the short term until April and once prices start to come down then fix the price for a longer period of time.
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