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Natural gas rises above $ 9 to the highest since 2008 on low inventories

A liquefied natural gas (LNG) tanker is towed to a thermal power station in Futtsu, east of Tokyo, Japan.

Issei Kato | Reuters

Natural gas rose to over $ 9 per million British thermal units, or MMBtu, on Wednesday, reaching its highest level in more than a decade as declining inventories push prices higher.

US prices rose by more than 6% at one point and reached a high of USD 9,399 per MMBtu, the highest since August 2008. The movement is the last stage higher in what has been a violent rally for natural gas as Russia̵[ads1]7;s war against Ukraine gets the energy markets to race. .

David Givens, head of natural gas and power services for North America at Argus Media, pointed to three key catalysts driving the upswing: low production growth, high liquefied natural gas exports and storage levels that are about 17% below the five-year average. .

Rapidly rising prices are contributing to inflationary pressures across the economy. Drivers are already struggling with record high prices at the petrol pump, and now the consumption bills will also increase. While energy companies could once have switched to coal as a cheaper alternative, coal-fired power is now also in short supply with a number of plants going offline, partly due to ESG’s environmental, social and governance concerns.

Campbell Faulkner, senior vice president and data analyst at OTC Global Holdings, said the drought in the western United States has reduced hydropower production.

“[G]”that will be forced to meet a significantly larger share of electricity consumption during a summer that seems to be top records for electricity load,” he said.

“Gas for many years was the waste by-product of continued shale drilling across producing basins in the United States, which kept prices unusually low. Since the 2020 bottom of drilling, the market has been pushed into a tight supply-demand situation that will not be remedied quickly,” he added.

Natural gas is now up almost 30% in May, the third month in a row when the increase has peaked 20%, and prices are now up around 150% for 2022.

Some of Wednesday’s trading actions may also be due to the expiry of the forward contract on Thursday.

“Trader positioning around today’s contract expiration in June and tomorrow’s final settlement is likely to dominate immediate trading, especially later in the session,” EBW Analytics said in a note to customers.

“With poorly defined technical resistance to the high side, the potential for fireworks carrying NYMEX natural gas futures remains abruptly higher over the next two days,” the company added.

Nevertheless, the more actively traded contract for delivery in July was also over $ 9 on Wednesday.

The S&P energy sector increased by more than 1% on Wednesday and remains around the highest level since November 2014.

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