There is a looming shortage of natural gas for the United States

Last week, the media rushed Report That US natural gas prices fell sharply after labor unions and rail companies reached an initial deal that averted a potentially devastating strike.

In fact, natural gas prices have fallen by nearly $1 per million British thermal units, helped by a significant increase in inventories. However, stocks are still below the seasonal average, exports are running at record rates, and producers are starting to struggle to meet demand, both at home and abroad.

John Kemp from Reuters Wrote In a recent column, domestic and international gas consumption has risen to record levels, and shale oil producers – those who account for the bulk of US natural gas production – have been struggling to catch up with that demand.

Meanwhile, despite rising on a weekly basis, inventories have remained at the second lowest level for this time of year over the past 12 years, a market analyst noted to Reuters. He added that there are no signs of any improvement in the level of stocks despite the high prices.

None of this indicates a decline in natural gas prices to the US or international markets as winter approaches the northern hemisphere. On the contrary, recent figures indicate more financial suffering for gas consumers. And they confirm, to some extent, forecasts made earlier this year.

In the spring, directors of investment firm Goehring & Rozencwajg said US gas prices would converge at international prices at the end of 2022. And they note something few other analysts tend to mention: Much of US gas production is concentrated in a handful of fields, with just two — Marcellus and Haynesville — accounting for up to 40 percent of the total.

The Permian River contributes another 12 percent of total US gas production, and the number of rigs in the Permian has been down for two weeks in a row, according to the latest data. Less drilling means less associated gas to add to the national total.

Meanwhile, on the demand side, US electricity generation is expected to hit a record high this year, Kemp noted in his column, spurred by the post-pandemic economic recovery. A hotter summer also contributed. The cold winter will surely increase gas consumption.

Another contributing factor is the lack of alternative sources of electricity generation: Coal plants have been shut down, and droughts in many parts of the country have eroded their hydropower capacity, a Reuters analyst noted.

While this is happening at home, the demand for gas continues to be strong all over the world as well, as everyone strives to stock up on fuel for the winter. US energy companies are exporting LNG at record rates. Exasperation in the house began to raise its head.

“We appreciate that [Joe] The Biden administration is working with European allies to expand fuel exports to Europe. A similar effort must be made for New England,” a group of New England governors wrote in a letter to Energy Secretary Jennifer Granholm this summer, in the Financial Times. Report.

Then the governors went on to call on the administration to make sure there was enough LNG for American consumers, essentially telling politicians to reduce LNG exports. This does not bode well for balancing the US gas market.

In May, John Kilduff of Again Capital told CNBC that he expects gas prices to be as high as $10 per million British thermal units and possibly as high as $12 to $14. “This is a commodity that is parabolic a lot. It’s not unusual for the parabola to move up and down. It’s incredibly volatile, and it also has the potential to reset. We could get $10 or $12, and if you have a cold August, it could go lower. to under $8 again,” he said at the time.

This month’s Energy Information Administration review Its full-year gas price forecast is upward, seeing the commodity average $9 per million British thermal units last quarter before dropping to $6 per million British thermal units in 2023. The EIA noted that the decline will come as a result of To increase domestic gas production.

In the meantime, until such an increase in production materializes to the point that it begins to affect prices, there appears to be only one way in which it will rise: rise. With heating season fast approaching in both Europe and the US and with a lot of people in both places using gas for heating, gas price forecasts don’t look good from a consumer perspective. However, it looks good from a gas source perspective.

US gas prices are unlikely to rise anywhere near European levels, but they are rising massively 300 percent A few years ago when gas was cheap because it was so readily available. This type of price increase affects everything along the supply chain that includes electricity produced using gas, sending waves through the economy. The more gas utilities are used for the lack of reliable alternatives, the more energy-driven inflation will continue.

By Irina Slough for Oilprice.com

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