Natural gas prices are skyrocketing globally. What it means for the
The Point of Ayr Gas Terminal in Talacre, Wales, on September 20, 2021.
Christopher Furlong | Getty Images
A global energy crunch is sending natural gas prices soaring in the U.K., Europe and Asia hitting record highs. However, experts say the stratospheric prices seen in Europe are unlikely to carry over to the States.
Much will ultimately depend on what the winter weather brings. But the U.S. is better positioned heading into the colder months given that it’s the world’s largest natural gas producer, and because inventory levels are not as depleted as they are in Europe.
“We’re at a unique point in time now where just all energy prices are going up,” Francisco Blanch, head of global commodities, equity derivatives and cross-asset quantitative investment strategies at Bank of America Merrill Lynch, said last week on CNBC’s “The Exchange.” “The U.S. is much more insulated from this global energy trend than the rest of the world,” he added.
That’s not to say U.S. prices won’t be volatile. Natural gas futures settled at their highest level since December 2008 on Tuesday. On Wednesday, the contract traded as high as $6.466 per million British thermal units (MMBtu).
Natural gas for November delivery has since eased from that level, but it’s still on track for the seventh straight week of gains. The contract currently trades around $5.63 per MMBtu, which is more than double where prices were at the beginning of the year.
But the moves abroad are far more extreme. Analysts at Deutsche Bank noted that in Europe prices are up five fold, while in the U.S. and Asia prices are about 1.5 times higher. In Europe, the price spike in natural gas is equivalent to if oil were trading around $200 per barrel.
“The importance of these moves on inflation, growth and external accounts are not to be underestimated,” the firm wrote in a note to clients. “These price moves are a big deal.”
Coal and oil prices are also jumping. West Texas Intermediate crude futures, the U.S. oil benchmark, topped $80 per barrel on Friday for the first time since November 2014. International benchmark Brent crude, meanwhile, traded at its highest level since 2018. Analysts say that elevated natural gas prices could even prompt utilities to swap the fuel for oil.
Why are prices jumping?
A number of factors are fueling the price surge in natural gas and commodities like oil and coal more generally.
Demand is rebounding as economies get back to business and consumers return to pre-pandemic activities. At the same time, producers, who suffered through 2020’s unprecedented downturn, have been slow to hike output.
A colder and longer-than-expected 2020 winter meant that European inventory levels were below average heading into the fall. On top of that, slow wind speeds and dry conditions weighed on renewables’ energy output. Carbon offsets are pricey and the continent has moved away from coal-fired plants, meaning everyone was suddenly competing for natural gas.
Europe’s gas production has declined…
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