Natural gas exceeds $ 9 at the highest since 2008 with low inventories

A liquefied natural gas (LNG) tanker is being towed to a thermal power plant in Futtsu, east of Tokyo, Japan.

Issei Kato | Reuters

natural gas topped $ 9 per million British thermal units (MMBtu) on Wednesday, reaching its highest level in more than a decade as dwindling inventories drive prices up.

US prices rose more than 6% at one point, hitting a high of $ 9,399 per MMBtu, the highest since August 2008. The move is the latest stop in what has been a skyrocketing rise for gas. natural as Russia’s war on Ukraine causes energy markets to falter.

David Givens, Head of Natural Gas and Energy Services for North America at Argus Media, pointed to three key catalysts fueling the rally: low production growth, high liquefied natural gas exports, and approximately 17% lower storage levels. to the five-year average.

The rapid rise in prices adds to inflationary pressures across the economy. Drivers are already struggling with record prices at the gas pump and now their bills are set to rise too. While utility companies may have switched to coal as a cheaper alternative, coal-fired power is now also in short supply with a number of plants being offline due in part to ESG concerns.

Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, added that drought in the western United States has reduced hydroelectric production.

“[G]as it is forced to meet a significantly larger portion of energy consumption during a summer that appears to be hitting records for electricity load, “he said.

“Gas for many years has been the waste byproduct of continued shale drilling in production basins in the United States, which has kept prices unusually low. Since the 2020 low in drilling, the market has been pushed into a tight spot. tight supply demand that will not be remedied quickly, “he added.

Natural gas is now up nearly 30% in May, the third consecutive month that earnings have surpassed 20% and prices have now risen about 150% for 2022.

Some of Wednesday’s trading action may also be due to the futures contract expiring on Thursday.

“The trader’s positioning around today’s June contract options expiration and tomorrow’s final settlement is likely to dominate short-term trading, particularly later in the session,” EBW Analytics said in a note to clients.

“With ill-defined technical resistance on the upside, the potential for fireworks that will drive NYMEX natural gas futures to a dramatic upside over the next couple of days remains,” the company added.

However, even the most actively traded contract for July delivery was over $ 9 on Wednesday.

the S&P energy sector it gained more than 1% on Wednesday and is hovering around its highest level since November 2014.

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