Natural gas prices soar as mercury plummets

HOUSTON — Natural gas prices spiked by nearly 10 percent on Friday to levels not seen since 2010 as another wave of freezing weather brought surges of heating and electricity demand.

Bone-chilling weather had already strained the natural gas pipeline system serving the Northeast in early January, and the thermometer’s latest plunge caused natural gas prices to rise by more than 5 percent nationally on each of four consecutive days.

Friday’s price of $5.20 per thousand cubic feet was the first time gas had crossed the symbolic $5 threshold in three and a half years, although the current price is still roughly a third of the gas price before the 2008 financial crisis and the surge in domestic production since then.

Energy experts said the new price increases were likely to mean higher electricity and heating costs over the next year, although utilities typically use hedging instruments and strategies on commodity exchanges and other markets to stabilize retail prices. There has also been some fuel switching from natural gas to coal, partly reversing a trend of recent years.

The sudden surge in gas prices, following a slow climb over the last year and a half, represents a break from a deep slump in gas prices between 2009 and early 2012 because of a frenzy of drilling in shale gas fields across Texas, Pennsylvania, Louisiana and Arkansas.

With gas prices plummeting to a low of $1.92 per thousand cubic feet in April 2012, less than one-fifth of gas prices in Europe and Asia, the domestic fertilizer, plastics and chemical industries began to enjoy an upturn, with some industries relocating plants from abroad back to the United States. At the same time, cities and businesses began to convert their bus and truck fleets to run on natural gas to take advantage of the low gas prices, further bolstering demand, and natural gas producers slowed their drilling.

Energy analysts say that the sudden price increase this month is almost entirely related to the weather, but it appears to be lasting. “We’re going to be facing higher prices through the winter at least,” said Addison A. Armstrong, senior director of market research at Tradition Energy, a consultancy, “because of the double shot of Arctic weather, which is expected to extend at least into early February, and because forecasts for inventories for the end of winter look to be the lowest in a decade.”

Inventories a week ago were 2.42 trillion cubic feet, 13 percent below the five-year average for mid-January. The natural gas price, up by nearly a third over the last two weeks, is roughly 50 percent higher than last year.

Mr. Armstrong said it was “highly unlikely” that gas prices would go below $4 per thousand cubic feet for the rest of the year despite the near-record domestic gas production. Higher natural gas prices should help oil and gas company profits at a time when oil and gasoline prices have been declining and production costs rising. It should also encourage more natural gas drilling in areas of northern Texas, Arkansas and northwestern Louisiana, where drilling booms bolstered local economies until a price bubble burst and drilling wound down in recent years.

But at least temporarily, energy experts said the cold weather could stymie some gas production because of power outages and freezes inside pipes at well sites in Pennsylvania and North Dakota. Freezing temperatures have even interrupted some oil and gas field work as far south as Texas, which experienced rare sleet and ice storms on Friday. 

http://www.nytimes.com/2014/01/25/business/energy-environment/natural-gas-market-heats-up-as-temperatures-fall.html?_r=0