By Scott DiSavino
(Reuters) – Regional natural gas markets in the United States see prices this winter rise along with world records – suggesting headache-causing energy bills in Europe and Asia will soon hit the world’s largest producer gas.
Gas prices in Europe and Asia have more than tripled this year, forcing manufacturers to scale back operations from Spain to Britain and triggering energy crises in China.
The United States has been shielded from this global crisis because it has an abundant gas supply, most of which remains in the country, as the United States’ export capacity is still relatively small.
The benchmark US natural gas contract has rallied, recently hitting seven-year highs, but its price of $ 5.62 per million British thermal units (mmBtu) is nowhere near the $ 30 and above paid in Europe and in Asia.
However, the American market is worried about the coming cold, particularly in New England and California, where the prices of gas to be delivered this winter are well above the national benchmark. In New England, buyers expect gas to cost more than $ 20 per mmBtu.
High prices in winter are nothing new for New England and California, where the limited number of pipelines in both regions is regularly limited on colder days. But this winter could be worse.
Both regions have spent years aggressively moving away from fossil fuels through regulations, decommissioning of power plants, and pricing of the carbon that makes electricity from fossil fuel production, in particular. especially coal, more expensive.
US gas currently delivered to the Henry Hub terminal in Louisiana, the nation’s benchmark, recently surpassed $ 6 for the first time since 2014. For January, that price is in the same range, suggesting buyers believe the country as a whole will have an extensive pipeline and access to storage to keep fuel flowing this winter.
“Henry Hub prices continue to climb through the winter months, but we should see even larger increases on the east and west coasts of New England and California,” said Matt Smith, senior analyst at the oil for the Americas at the commodities analysis firm Kpler.
In New England, gas for January delivery is skyrocketing, trading this week for more than $ 22 at the region’s Algonquin hub, which would be the highest price paid in a month since January and February. 2014.
This reflects that the region, which turns to liquefied natural gas (LNG) when its pipelines become congested, will have to compete with buyers in Europe and Asia who are already paying significantly more for supercooled fuel.
Gas-fired power plants are expected to produce about 49% of the electricity produced in New England. That’s in line with the past five years, but aggregate demand is increasing as the economy has recovered.
“What drives gas prices up for us is increased demand for pipeline gas as the economy recovers and supply catches up after pandemic low demand,” said Caroline Pretyman, carrier. word of Eversource Energy, New England’s largest energy supplier.
CALIFORNIA DREAMIN ‘ON A WINTER DAY
Southern California citygate prices for January 2022 were trading at over $ 13 this week, which would be a record outside of February 2021, when the Texas freeze pushed gas prices to record highs in de many parts of the country.
Prices are on the rise in California because the state suffers from a long drought that has limited its ability to generate electricity from hydropower. Solar was also limited by the smoke blanket from the wildfires, analysts said.
As a result, the state has relied more on gas-fired power plants, which are expected to account for around 45% of electricity produced this winter, above the five-year average of 41% as drought limits hydropower supply. , according to federal projections. .
According to federal projections, only 4% of the electricity produced in California will come from hydroelectric facilities this year, compared to an average of 14% over the past five years.
Unlike New England, California has access to gas supplies from several regions, including the Permian Shale in Texas and New Mexico, the Rocky Mountains, and Canada.
New England imports about 16 billion cubic feet (bcf) of LNG during the winter, which is equivalent to about 5% of its gas consumption in the winter. However, competition from Europe and Asia means these shipments will be expensive.
Some generator sets have another option: switch to burning oil. Right now, fuel oil costs about three times as much as natural gas, so that kind of change will only happen when gas prices go up. Oil also emits about 30% more carbon dioxide and other pollutants.
Analysts expect New England to start burning oil earlier than usual this year. Notably, during an extreme cold event starting at the end of December 2017, oil reached 27% of total electricity production, against less than 1% at the start of the month, according to ISO New England, the network manager of the region.
For a graph on the winter of dissatisfaction with natural gas:
(Reporting by Scott DiSavino; Editing by David Gaffen)