Global Natural Gas Price Surge Expected for the United States This Winter, According to Reuters

By Scott DiSavino

Regional markets in the United States are experiencing a surge in natural gas prices this winter, mirroring record highs seen globally. This trend suggests that the energy bills that have already caused significant issues in Europe and Asia may soon impact the U.S., the world’s leading gas producer.

Gas prices in Europe and Asia have increased more than threefold this year, prompting manufacturers to reduce operations from Spain to Britain, while also leading to energy crises in China.

The U.S. has largely been insulated from this global crisis due to its substantial gas supply, most of which stays within the country since export capabilities remain limited. The benchmark U.S. natural gas contract has recently been rising, reaching seven-year highs. However, the current price of $5.62 per million British thermal units (mmBtu) is significantly lower than the $30-plus rates in Europe and Asia.

Still, there are concerns about the upcoming cold weather, especially in New England and California, where the prices for winter gas deliveries are considerably higher than the national average. In New England, for instance, buyers are anticipating prices exceeding $20 per mmBtu.

High winter prices are a common issue in New England and California, where the limited pipeline infrastructure often faces constraints during extreme cold. This winter, the situation could be even more challenging, as both regions have been actively transitioning away from fossil fuels through regulatory measures, the retirement of power plants, and carbon pricing policies that raise the cost of fossil-fuel-based electricity.

Currently, gas delivery prices at the Henry Hub terminal in Louisiana—the U.S. benchmark—have recently surpassed $6 for the first time since 2014. The January price is expected to be in the same range, indicating that buyers anticipate sufficient pipeline and storage access to maintain fuel supply this winter.

“Henry Hub prices are rising for the winter months, but we’re likely to see even more significant increases on the East and West Coasts, particularly for New England and California,” said Matt Smith, lead oil analyst for the Americas at a commodity analytics firm.

In New England, January delivery prices are surging, currently trading at over $22 at the Algonquin hub—the highest recorded in the region since early 2014. This increases the challenge for New England, which often turns to liquefied natural gas (LNG) when pipeline congestion occurs, as it will now have to compete with buyers in Europe and Asia who are already paying more for LNG.

Gas-fired power plants in New England are projected to generate around 49% of the electricity produced in the region. This aligns with the last five years’ trends, but demand is rising due to economic recovery. “The increase in gas prices is driven by the expected rise in demand for pipeline gas as the economy rebounds, alongside supply recovering from pandemic lows,” explained a spokesperson for New England’s largest energy provider.

In California, January prices at the Southern California citygate are trading above $13, marking a record high outside of February 2021, when a severe freeze in Texas caused prices to spike across many states.

California’s electricity generation has been hindered by an ongoing drought, affecting its hydropower capabilities. Additionally, solar energy generation has been limited by wildfire smoke. Consequently, the state is leaning more heavily on gas-fired plants, which are expected to account for about 45% of its electricity this winter, exceeding the five-year average of 41%.

Federal projections estimate that only 4% of California’s electricity will come from hydro facilities this year, a significant drop from the past five-year average of 14%. Unlike New England, California has access to diverse gas supplies from regions including the Permian shale in Texas and New Mexico, the Rocky Mountains, and Canada.

New England typically imports about 16 billion cubic feet of LNG during winter, constituting around 5% of its seasonal gas consumption. However, increased competition from Europe and Asia is likely to inflate costs for these shipments.

Some power generators have the option to switch to burning oil, although the current price of fuel oil is about three times that of natural gas, making such a switch less likely unless gas prices rise further. Furthermore, oil combustion produces approximately 30% more carbon dioxide and other pollutants.

Analysts anticipate that New England may resort to oil utilization earlier than usual this year. Notably, during an extreme cold event in late December 2017, oil generation rose to 27% of overall power generation, a stark increase from less than 1% earlier that month.