US natural gas prices topped $10 a million British thermal units on Tuesday, a level last traded during a historic commodity price boom in 2008, as shockwaves from Europe’s energy crisis reach into the world’s largest producer of the fuel.
The US gas market is now trading at price levels last hit before shale drilling ushered in a decade of plentiful supplies. The bounty led to construction of coastal terminals to export liquefied natural gas, a reversal of plans for LNG imports made when US prices were higher.
Utilities, industries and traders in the US and abroad are now scouring markets to meet soaring gas demand and fill storage sites before the winter heating season, worried over further cuts to Russian supplies into Europe.
Gas prices in Europe are far higher than in the US as fears of severe winter shortages grip the market, spreading concerns that energy costs will tip economies into recession. Prices on the continent on Monday hit an intraday record €295 a megawatt-hour, equivalent to about $79/mn Btu, although they eased slightly on Tuesday.
James Huckstepp, an analyst at S&P Global Commodity Insights, said that hot temperatures and low output from wind power generators in Europe were also helping to drive prices higher. “The recent hot, dry and relatively still weather is as bullish as it gets,” he said.
A series of heatwaves this summer has sent demand from gas-fired power plants to record highs as electricity generators increase output to meet demand for air conditioning, the US Energy Information Administration said on Tuesday.
High international gas prices have also kept US export terminals running at maximum rates this year as traders capture arbitrage opportunities by shipping gas abroad. US exports are set to increase further in October when the Freeport LNG plant in Texas is due to restart after the plant was knocked offline by an explosion in June.
The prices have encouraged more drilling activity, but US gas production has not kept pace with demand. As of mid-August, domestic stocks of working gas stood at 2.519tn cubic feet, about 13 per cent below average.
Most American LNG cargoes this year have been flowing to Europe, to which US president Joe Biden has offered supplies to help offset losses associated with sanctions on Russia over its war in Ukraine.
But competition for LNG is expected to intensify as buyers from South Korea, Japan and China start looking to secure supplies ahead of the winter.
Gas prices in the UK have been marginally lower than in Europe for much of the summer as the country has excess LNG import capacity, allowing it to bring in LNG and send it on to Europe via pipelines to help them fill storage sites.
However, the benchmark UK gas price is about $61/mn Btu, similar to offers seen in the Asia market for spot cargoes this week.
At midday on Tuesday, benchmark US gas had pared gains to trade at $9.73/mn Btu, up 0.5 per cent. In a sign of persistent concerns about winter supplies, the contract for delivery in January 2023 traded at $9.9/mn Btu, up 0.4 per cent.
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