print-icon
print-icon

US NatGas Prices Top $9, Hit 2008 Highs As EU 'Convergence' Accelerates

Tyler Durden's Photo
by Tyler Durden
Wednesday, May 25, 2022 - 12:15 PM

U.S. natural gas futures hit highs not seen since 2008 amid EU export demand, serious concerns of a sweltering summer, and the possibility stockpiles might not be refilled ahead of the heating season. 

Futures for June delivery were up over 2%, topping $9...

...for the first time since August 2008

Prices for this time of year have never been higher except for 2008. 

One driver of soaring prices is supply tightness. Weather forecasters predict a summer of heatwaves that could force households and businesses to crank up their air conditioners. There's also the concern about power grid strains where hydroelectricity and coal supplies are limited, which will increase the use of natgas power generation. 

A surge in natgas demand this summer could result in the inability of U.S. stockpiles to replenish ahead of the heating season. 

"It isn't about winter demand outlooks -- it's about summer refill outlooks," Gary Cunningham, a director at Tradition Energy, told Bloomberg. 

Another sign of market tightness is seen as July futures trade at a premium over next February futures, the first time in nearly two decades. 

There's also concern natgas production is not rising fast enough to meet growing demand: 

"In the last month, there has not been a meaningful uptick in U.S. lower 48 states production.

"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," Matt Palmer, senior director North American natural gas at S&P Global Commodity Insights, told CNBC. 

As US LNG demand soars to cover Europe's shortfall, higher US prices have resulted in the compressing of E.U.-U.S. natgas spread (1mo ahead vs futs). 

And in fact, US NatGas futures are now trading at a premium to Day-Ahead EU NatGas prices for the first time in more than one year. 

We suspect by summer, Americans who favored exporting natgas to Europe would regret their decision due to high electricity bills.

And how will the Biden administration fix this problem? Can't keep blaming Putin.

0