Surge in Power Demand Causes US Natural Gas Prices to Soar

More Than Double Compared to Last Year... Increased Use of Cooling Devices Due to Heat Dome Phenomenon

[Asia Economy Reporter Byunghee Park] Natural gas prices in the United States, which experienced a heat dome phenomenon this summer, are soaring. This is because the power demand for cooling devices such as air conditioners is skyrocketing to endure the heatwave. The dry weather, which has led to a series of large wildfires, has also caused a decrease in hydroelectric power generation, contributing to the surge in natural gas demand.

The Wall Street Journal reported on the 2nd (local time) that natural gas prices have risen 37% since last April, making it the hottest commodity this summer. As of the 3rd, natural gas futures prices stood at $4.027 per MMBtu (the amount of gas that produces 250,000 kcal of heat), more than double the price at this time last year.

Although natural gas prices have surged to their highest level since 2014, suppliers have not yet increased production. They intend to maintain high natural gas prices by limiting supply to secure greater profits. This is based on the judgment that natural gas prices remained low for several years due to oversupply.

Toby Rice, CEO of EQT, a natural gas producer in Pittsburgh, pointed out that the current natural gas futures price expiring in March 2023 is below $3 and said that production will increase when prices are expected to exceed $3 per MMBtu over the next 2 to 3 years. He added that even if production increases, it will not rise by more than 5%.

As demand grows but supply remains limited, Wall Street is repeatedly revising upward its natural gas price forecasts.

JP Morgan Chase recently stated in a report that it did not expect natural gas prices to reach $4 per MMBtu so quickly. JP Morgan raised its natural gas price forecast for the fourth quarter of this year from $3.10 to $3.80 per MMBtu and predicted that the price rally would continue through next year.

Goldman Sachs also raised its winter price forecast by 13% to $3.50 per MMBtu compared to previous estimates and expects similar price levels to be maintained through next winter.

Increased overseas demand is also driving up natural gas prices in the U.S. In June, natural gas exports to Mexico hit a record high, and natural gas prices in the Asia region have more than doubled since April.