Natural gas prices have already doubled this year. A hot summer could

U.S. natural gas prices more than doubled since the start of the year, and this summer’s air conditioning season could send them soaring by at least another 25%.

In the futures market, gas prices surged 4% Tuesday as hot spring weather in the southern U.S. pressured a market that has already been concerned about tight supplies. The forecast points to warmer weather across the south to continue.

“In the last month, there has not been a meaningful uptick in U.S. lower 48 states production,” said Matt Palmer, senior director North American natural gas at S&P Global Commodity Insights. “You’re seeing exports running full out on LNG; power burn from the power sector is really strong and layer in the heat we’re seeing and the expectation that the southern tier of the continent in May and June will see well above normal temperatures. That’s a recipe for higher prices.”

Natural gas futures were trading at about $8.30 per million British thermal units [mmBtu], up 137% for the year. A heat wave is expanding in the South, with temperatures above 100 degrees in some places. According to the National Weather Service, high temperature records are forecast to be tied or broken this week in Texas, Oklahoma and Louisiana.

The higher natural gas prices are hitting U.S. businesses and consumers at a time when other energy prices are surging with gasoline and record diesel fuel at records. Palmer said utilities that normally switch to coal for power when natural gas prices rise are finding that coal is even more expensive — the equivalent of $9 to $10 gas.

“The likelihood of prices in the double digits this summer is getting stronger by the day,” Palmer said.

While Russia’s invasion of Ukraine has sent Europe’s gas prices sharply higher, U.S. prices have edged up as well. Russia was supplying about a third of Europe’s gas.

U.S. prices, however, are not directly linked to the global market, even as the country sends about 15% of its gas production overseas in the form of liquified natural gas. European prices are about four times higher for LNG.

U.S. production fell sharply during the pandemic, and while it has restarted, it’s been growing slowly. In February, monthly production was 115.2 billion cubic feet per day, down from 118.7 BCF in December, according to the latest government monthly data.

“We’ll be topping $10 for sure. I would put $12 to $14 as the upper band,” said John Kilduff, partner of Again Capital. “This is a commodity that trades parabolically a lot. It’s no stranger to parabolic moves up and down. It’s incredibly volatile, and it also has the ability to reset. We could get to $10 or $12 and if you have a cool August, then you could be down below $8 again.”

Supply is tight in the U.S. market. The amount of gas in storage has been at an unusually low level, and cold spring weather followed by the heat wave has created more…