Sunday, October 24, 2021

Analysis: Global natgas price hike looms for the United States this winter

Regional natural gas markets in the United States are seeing prices to surge this winter along with global record highs—suggesting that headache-causing energy bills in Europe and Asia may soon see the world’s top gas producer rise. will affect.

Gas prices in Europe and Asia have more than tripled this year, prompting manufacturers to curtail activities from Spain to the UK and spark an electricity crisis in China.

The United States has been spared that global crisis because it has enormous gas supplies, much of which remains in the country because US export potential is still relatively low.

The benchmark US natural gas contract recently hit a seven-year high, but its $5.62 per million British thermal unit (mmBtu) price is a far cry from the $30-plus being paid in Europe and Asia.

However, the US market is concerned about the coming cold, especially in New England and California where gas supplied this winter has prices well above nationwide benchmarks. In New England, buyers are expecting gas prices to exceed $20 per mmBtu.

High winter prices are nothing new for New England and California, where a limited number of pipelines in both regions are regularly interrupted on the coldest days. But this winter could be worse.

Both sectors have spent years aggressively moving away from fossil fuels through regulations, power plant retirements and carbon pricing, which makes electricity from fossil-fired generation, especially coal, more expensive.

US gas currently being delivered to the Henry Hub Terminal in Louisiana, the nation’s benchmark, recently surpassed $6 for the first time since 2014. With the price in the same range for January, buyers feel there will be enough pipeline across the country and storage access to keep the fuel flowing this winter.

“Henry Hub prices continue to climb for the winter months, but we should see even bigger increases on the east and west coasts for New England and California,” said Matt Smith, US principal oil analyst at commodity analytics firm Kepler. .

In New England, gas for January delivery is on the rise, trading this week at more than $22 in the area’s Algonquin hub, which would be the highest price paid in a month since January and February of 2014.

This shows the sector, which turns to liquefied natural gas (LNG) when its pipelines become congested, will have to compete with buyers in Europe and Asia, who already have a lot of money for the super-cooled fuel. Paying more.

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Gas-fired power plants are expected to produce about 49 percent of the electricity generated in New England. This is in line with the last five years, but overall demand is picking up as the economy recovers.

“We expect gas prices to rise as the economy improves as demand for pipeline gas is increasing, and supply is shrinking,” said Carolyn Preetman, spokeswoman for Eversource Energy, New England’s largest energy provider.

California is Dreaming on Winter’s Day

Prices at Southern California Citygate for January 2022 were trading above $13 this week, a record outside February 2021, when the Texas freeze pushed gas prices to record levels in many parts of the country.

Prices are rising in California as the state suffers from a prolonged drought that has limited its ability to generate electricity through hydropower. Solar has also been constrained by the smoke cover from the wildfires, analysts said.

As a result, the state has relied more on gas-fired plants, which are expected to generate about 45 percent of the electricity this winter, up from the five-year average of 41 percent, as dry hydropower. Limits supply, according to federal estimates of .

According to federal estimates, only 4 percent of the electricity produced in California will come from hydro facilities this year, down from an average of 14 percent over the past five years.

Unlike New England, California has access to gas supplies from more areas, including Texas and New Mexico, the Rocky Mountains, and the Permian Shale in Canada.

New England imports about 16 billion cubic feet (bcf) of LNG during the winter, equivalent to about 5 percent of its winter gas consumption. However, competition from Europe and Asia means those shipments will come at an expensive price.

Some power generators have another option – switching to burning oil. Right now, fuel oil costs about three times that of natural gas, so such a switch would only happen with a rise in gas prices. Oil also emits about 30 percent more carbon dioxide and other pollutants.

Analysts expect New England to start burning oil sooner than usual this year. Notably, during an extreme cold event that began in late December 2017, oil accounted for 27 percent of total electricity generation, compared to less than 1 percent that month, according to the region’s grid operator ISO New England. Gaya.

by Scott DiSavino

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This News Originally From – The Epoch Times

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