Frigid winter sets cost of natural gas on fire

Price of natural gas is up 25 percent in two weeks and is 45 percent higher than last year at this time
Associated Press
Jan 24, 2014

The frigid winter of 2014 is setting the price of natural gas on fire.

Friday, the price in the futures market soared to $5.18 per 1,000 cubic feet, up 10 percent to the highest level in three and a half years. The price of natural gas is up 29 percent in two weeks, and is 50 percent higher than last year at this time.

Record amounts of natural gas are being burned for heat and electricity. Meanwhile, it's so cold that drillers are struggling to produce enough to keep up with the high demand. So much natural gas is coming out of storage that the Energy Department says supplies have fallen 20 percent below a year ago — and that was before this latest cold spell.

"We've got record demand, record withdrawals from storage, and short-term production is threatened," says energy analyst Stephen Schork. "It's a dangerous market right now."

Natural gas and electric customers are sure to see somewhat higher rates in the coming months. But they will be insulated from sharp increases because regulators often force natural gas and electric utilities to use financial instruments and fuel-buying strategies that protect residential customers from high volatility.

To understand the price increase, just look at the thermometer. A second major cold snap this month is gripping much of the country, including the heavily-populated Northeast. And forecasters are now predicting colder weather in the weeks to come, extending south through Texas.

Natural gas is used by half the nation's households for heating, making it the most important heating fuel. Electricity is the second most popular heating source, and electric power generators use natural gas to generate power more than any other fuel except for coal.

Commodity Weather Group, which predicts heating demand for energy companies and consumers, said in a report Friday that periodic breaks in the cold weather are expected to be "weaker and briefer, extending the duration of colder weather" in late January and early February.

There are a couple of other factors at play. In the past, much of U.S. natural gas was produced in the Gulf of Mexico. If weather disrupted supplies there, it was typically in the early fall, during hurricane season, when heating and electricity demand are low and natural gas storage facilities are mostly full in preparation for winter.

Now, much of U.S. production comes from on-shore formations that are more susceptible to cold, ice and snow. Wells that are not designed for such extreme conditions can freeze, halting production.

"Now the threat to production is when demand is at its highest," Schork says.

Also, electric utilities have for several years been switching to cheaper natural gas for power generation. And new pipelines aren't being built fast enough to deliver all the gas required at times of high demand. That can lead to regional shortages that send prices skyrocketing.

In some producing regions in Pennsylvania gas was selling for below national benchmarks Friday, But closer to East Coast cities it was selling for 10 times those benchmarks because producers couldn't get their gas into packed pipelines, according to Citibank energy analyst Anthony Yuen.

When the Calvert Cliffs Nuclear Station in Maryland shut down earlier this week because of an electrical problem brought on by snow and ice, power generators across the East Coast scrambled to replace the lost power by cranking up natural gas-fired plants. That sent natural gas prices for immediate delivery, known as the spot price, to a record $120 per 1,000 cubic feet in some markets on the East Coast. To put that in perspective, that's equivalent to oil at more than $700 per barrel.

Analysts say there is plenty of gas to replenish supplies, and drillers will likely ramp up production so they can fetch prices they haven't seen since June of 2010.

That could push prices back down somewhat in the coming weeks. If, that is, the weather warms up later in February and March. If it's still cold when baseball season opens in early April, though, Schork says, "we'll be looking at much higher natural gas prices."

Comments

Don S

Any excuse to raise the prices, just like gasoline !!!!!!

KURTje

Think you are right Don. Its called buSINess.

phroggy

They're all acting like there is a natural gas crisis when this certainly is not the case.

From the Grave

It's called RAPE, if you ask me.

BULLISDEEP's picture
BULLISDEEP

Exporting fuels overseas .

lugnut2511

They take advantage every single chance they get, I remember this summer reading an article that natural gas was going to be at an all time low.. Funny t surely isnt now!!!! get rich fast scheme

Peninsula Pundit

They are also looking at building a fleet of large ships that will allow our Natural Gas to be shipped overseas.
Natural Gas is being flared into the atmosphere in the Bakken because they are after the 'wet' contents of those wells.
The even bigger BS story is that propane is scarce.
Propane is a natural by-product in the refining of gasoline.
The only way there's going to be a shortage is if the refineries shut down, and that hasn't happened.

JudgeMeNot

The gas is being flared due to a lack of pipeline infrastructure in the Bakken. Flaring reduces reduces greenhouse gases because flaring changes the gas to methane gas when burnt. Bakken only contributes to the worlds flaring at 1%. They simply just lack the infrastructure to capture it.

You are correct on the propane being a by-product of gasoline production, but clearly you have 0 understanding of the propane industry.

Licorice Schtick

Re: "Flaring reduces reduces greenhouse gases because flaring changes the gas to methane gas when burnt."

That statement is both misleading and nonsensical. You are confused. Unprocessed natural gas is mostly methane. Utilizing atmospheric oxygen, flaring converts that methane and other alkanes - ethane, propane, etc. - mostly to carbon dioxide and water, which are also both greenhouse gases but have a much lesser impact than methane.

Clearly you have 0 understanding of greenhouse gases, and even less of basic chemistry, if that were possible.

So to be clear, venting with flaring generate greenhouse gases, but with much less impact that venting alone. It's still ridiculously wasteful and harmful, and should not be permitted until more of the gas can be collected.

OMG.LOL.WT_

And the railroads want to convert cause it's cheaper than diesel fuel.\

http://www.marketplace.org/topic...

Licorice Schtick

It would be more accurate to say that some wants to sell the railroads on a compressed natural gas (CNG) scheme. That's a long shot. It looks appealing when natural gas is cheap but CNG will always be relatively expensive due the the costs of compressing and handling it. Every time natural gas gets cheap, someone's selling a CNG scheme. Awhile back Cleveland's RTA busses were converted to CNG. Didn't work out.

ohioengineer

What I find interesting in all these articles about the cold weather is the LACK of any mention of global cooling. Yet, if we have a couple of hot days in July, the media goes crazy with ominous warnings about the end of life as we know it due to man-made global warming. Talk about having an agenda.