Wednesday, October 27, 2021

Rising natural gas prices could create opportunities for industry, financial pain for consumers

The recovering economy is driving up natural gas prices, which could boost energy companies’ bottom lines but dent consumers in the wallet.

Wholesale prices have more than doubled since the beginning of this year. Natural gas was around $6 per million British thermal units on Thursday, up from $2.66 in April.

In Europe and Asia, prices have exceeded $20 million per BTU. Analysts narrowed the jump to a number of factors: demand slowdown from earlier in the coronavirus pandemic; move from coal to natural gas; and short supply due to less drilling.

In the United States, a net exporter of natural gas, prices could prompt more drilling. Colorado, the nation’s No. 6 oil producer and No. 7 natural gas producer, could see a rebound in production.

On the other hand, homes and businesses can see a jump in heating and electricity bills. Xcel Energy-Colorado, the state’s largest electric utility, is seeking regulators’ approval to increase the rate, citing high prices and short supply.

“I don’t think we’ve seen the highest prices yet,” said Chase Walker, Denver-based vice president of business development for Embark Consulting. “I think we’ll see that it certainly affects our bottom line, as individuals, as cities, states and governments.”

As the weather is getting cooler and winter is approaching, the supply of natural gas is less than usual. Dean Foreman, chief economist at the American Petroleum Institute, said the pace of growth in underground storage areas is 10% to 15% below the five-year average.

“It’s unprecedented at the moment to be in this area, where we worry if we have a cold winter and, I think, to explain to consumers why we don’t have more supplies when we have enough at home. Resources here,” Foreman said.

A large part of the explanation has to do with the sudden, sharp drop in oil demand at the start of the pandemic, which continued as transportation and businesses slowed or closed worldwide. A large supply of oil and ample buyers sent oil prices below zero in April 2020.

Even as activity has resumed, oil and gas drilling has not returned to pre-pandemic levels. A key reason is that companies respond to demands that companies return more money to investors and shareholders rather than focus on expansion, said Amber McCullagh, director of midstream research for Envers.

“We haven’t seen drilling activity return nearly as quickly as it has been in the past,” McCullough said, “so essentially, you have gas demand that exceeds gas production today and basically has been throughout the year.” Some mild winter weather obscured it for a while. “

Nation World News Desk
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