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BY RYAN DECEMBER | Updated 30 OCT 2022 07:00 AM EDT
A major driver of inflation has been falling nearly 40% in two months as U.S. inventories have swelled since the end of the cooling-off period.
Natural gas prices have fallen more than 40% since hitting seasonal highs in late August, lowering the risk of heating bills this winter for millions of Americans and reduce the cost burden on producers.
The decline is due to warmer autumn weather, record building activity and gas storage facilities that have been filling up quickly since the end of the cooling season. Now, one of the main drivers of the price increase is the same price as last year.
Analysts warn that cold weather could push up prices this winter, especially in the Northeast where pipelines from Appalachia producers have been blocked.
But many predict that prices will be lower in 2023 than last year. They expect an increase in supply from North American consumers and increased demand from an economy that has recovered from central banks trying to slow inflation and more debt payments.
Natural gas futures for December delivery ended Friday at $5.684 per million British thermal units, 4.75% higher than a year ago. Earlier last week, futures fell below $5 for the first time since March, when energy markets were rattled by Russia’s invasion of Ukraine.
Permian Basin producers recently dumped the Waha trading house in West Texas, pushing prices into negative territory. In some financial markets, buyers paid more than $1 per million British thermal units to buy gas at more than $8 in early September, according to S&P Global Commodity Insights.
Analysts say prices may rise in the future as furnaces burn and a major natural gas export terminal in Texas resumes operations after a fire. this summer. But prices are expected to drop next year.
Goldman Sachs analysts predict US prices will be $5 per million British thermal units by 2023. BofA Securities expects $4.50. As of Friday, natural gas prices this year are expected to reach $6.60 per million British thermal units, costing not only households but also gas-fired power plants. materials from steel and cement to plastics and fertilizers.
Investors are banking on cheaper gas. Hedge funds and other hedge funds have in recent weeks made their biggest investments as prices fell since the sudden sell-off during the Covid lockdown in early 2020, according to Commodity Futures Trading Commission information.
Rising natural-gas prices have been a safe haven since the pre-pandemic days. Some of the hottest weather on record has stretched supplies at home and abroad, as the shutdown of coal-fired power plants has left power producers without natural gas. After the invasion of Ukraine, European utilities and manufacturers asked to import gas turbines to replace Russian exports.
U.S. greenhouse gas emissions ended the previous warming period at about 18% below normal levels. Another hot summer, export pressure and restrictions among North American producers focused on cash flow to their shareholders that prevented domestic storage facilities from being filled. In August, it was still nearly 13% below normal, and prices topped $10 for the first time since 2008, when shale mining began.
The mild weather in September means that less air is burned to power the air. Meanwhile, U.S. production rose to a record of more than 100 billion barrels per day, as a long outage at Texas’ Freeport LNG export terminal allowed more gas to be sold abroad.
Traders began to pump gas into storage tanks and caves and draw it out for the winter when demand was high.
Between September 9 and October 14, 571 billion cubic feet were added to inventories, the largest building in five weeks. The deficit to normal levels fell by more than half. A week ago, the amount of gas in storage was within 5.5% of normal levels for this time of year, according to the Energy Information Administration.
Matthew Palmer, managing director of Global Gas at S&P Global Commodity Insights, said the firm expected to fill the US supply starting the winter as in recent years, about 3.6 trillion cubic feet.
“That should be enough for most weather conditions,” he said. A very cold winter, however, like the cold season of 2013-14, which sucked nearly 3 trillion cubic feet from storage, could push prices north of $10, he said. each.
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