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Natural Gas Prices Signal Warning for Winter

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Operator in natural gas production industry | Image by Shutterstock

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Natural gas prices continue to hover at their highest level in almost 15 years, buoyed by strong overseas and domestic demand.

The surge in natural gas prices is due to a mix of weather-driven demand, soaring Liquid Natural Gas (LNG) exports, and lackluster domestic production, according to the Energy Information Administration (EIA).

Andrew Lipow, president of Lipow Oil Associates told The Dallas Express, “future prices for natural gas have more than doubled since this time last year, driven by hot temperatures and a mad rush of people wanting air conditioning to stay cool.”

Earlier this week, futures topped the $10 Metric Million British Thermal Unit (MMBtu) mark for the first time in over 14 years, supported by expectations of increased demand for U.S. LNG exports amid growing concerns of European shortages.

As the United States siphons off its dwindling domestic supply of LNG overseas to aid Europe with its energy crisis, many experts are wondering if the U.S. energy grid will have enough stowed away for the upcoming winter.

Natural gas is a leading fuel source for the electric grid, accounting for 38% of domestic production, Lipow explained.

“As the winter home-heating season gets closer, customers should expect to pay higher prices for electricity and natural gas,” he said.

Lipow said he does not foresee the prices of natural gas coming down anytime soon.

“Global energy prices are climbing as nations scramble to find stable sources of natural gas,” said Lipow. “The bitter energy divorce with Russia has created a lot of problems in Europe where energy prices are 10 times higher than they were the year before.”

The price of natural gas closed on Thursday at $9.35/MMBtu, up nearly 70% since June and hovering around its highest closing price since August 1, 2008.

“Depending on the weather, it could be a challenging winter,” said Rob Thummel, senior portfolio manager at Tortoise Capital Advisors. “But not as challenging as in Europe. They are at risk of running out of natural gas. We aren’t.”

U.S. natural gas futures bottomed around the $9.3/MMBtu mark after Freeport LNG announced that it would delay the restart of its Quintana export plant to November, backtracking previous statements of an October restart.

Russia’s Gazprom said it would halt flows through the Nord Stream 1 pipeline to Europe for three days of maintenance at the end of August. The main channel between Russia and Europe was already running at 20% capacity, putting pressure on the region as it seeks to refuel ahead of winter to avoid a natural gas shortage.

The good news, according to Lipow, is that higher prices should, eventually, incentivize more production.

In the short term, he said the U.S. should focus on building up its domestic supply of natural gas. In the long term, he thinks the U.S. should diversify its electricity sources and begin using more nuclear power, coal, solar, and wind.

Lipow recommended readers check out ChooseTexasPower.org to see which provider offers the lowest energy prices in any given zip code. After tabulating last year’s bills and comparing them with current prices, Lipow predicted he will be paying 40% more this upcoming winter.

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