U.S. natural gas prices rebound after big dip

Just when we thought falling natural gas prices might ease inflationary pressures, it all starts again.

By Wolf Richter for WOLF STREET.

So we have a little situation here. In early June, the price of natural gas futures in the United States had reached more than $9.50 per million Btu, about triple the price a year earlier and quadruple the price in 2020. This spike was caused by booming U.S. LNG exports, with one new LNG terminal after another coming on stream since 2016. Exports have added to demand for U.S. natural gas and have increasingly more tied US natural gas prices to world LNG prices.

And then, on June 8, a fire shut down the massive Freeport LNG natural gas liquefaction plant in Texas, cutting LNG export capacity by 17%. Over the next four weeks, U.S. natural gas futures plunged more than 40% into the $5.50 range. And it has been cited as one of the reasons why inflation has already hit a new high.

So here we go again. This morning, natural gas futures jumped to $8.29 per million Btu, adding to last week’s jumps. The price has regained much of the lost peak and is up around 30% from a month ago, and more than doubled from a year ago. So this is not going to help the CPI readings at all:

The Freeport LNG plant remains closed for safety reasons. The Federal Energy Regulatory Commission (FERC) announced Tuesday that it will inspect the plant in September. So maybe the plant will start loading LNG carriers again later this year.

In summer, in the United States, energy consumption increases due to the increased use of air conditioning. This summer, there was a deadly heat wave with searing triple-digit temperatures across much of the United States, and energy consumption weighed on power grids, and demand for natural gas by utilities generators increased.

So maybe it was a good thing that LNG exports were curtailed just before the heatwave and left extra gas for US consumption to power air conditioners and keep the price in the US from skyrocketing to the ionosphere.

It is the development of LNG exports from the United States to the rest of the world. The United States also exports natural gas by pipeline primarily to Mexico, but also to Canada, and these natural gas exports by pipeline are not included here. This chart only shows LNG exports, although April is the latest data available from the EIA and does not yet show the drop in exports due to the LNG terminal fire:

Historically, the price of natural gas in the United States, even at the current level, is not that extraordinary.

Before a large-scale hydraulic fracturing boom made the United States the largest natural gas producer in the world and created a glut in the United States that caused prices to collapse, there was the pressure, when LNG terminals were built to import natural gas (now converted to export terminals), and prices have been very high for years.

Today’s price is back in the range it was in between 2004 and 2008:

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