Natural Gas Soars as Cold Grips Homes, Drillers

The price of natural gas is up 29% in two weeks, and is 50% higher than last year at this time.

Jan 24, 2014 at 5:14PM

NEW YORK (AP) -- 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% to the highest level in three and a half years. The price of natural gas is up 29% in two weeks, and is 50% 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% 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."

link

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers