Just when we thought the drop in natural gas prices might take the pressure off inflation, does it start all over again.
Written by Wolf Richter for WOLF STREET.
So we have a small case here. By early June, the price of natural gas futures contracts in the United States had risen to more than $9.50 per million British thermal units, nearly triple the price from the previous year, and quadrupled the price in 2020. This rise was caused by US exports of gas LNG, and it is booming, with new LNG terminals emerging one after another since 2016. Exports have increased US natural gas demand and increasingly tied US natural prices to global LNG prices.
Then, on June 8, a fire shut down the massive Freeport LNG plant in Texas to liquefy natural gas, reducing LNG export capacity by 17%. Over the next four weeks, US natural gas futures fell more than 40% to the $5.50 range. It has been cited as one of the reasons for inflation to peak again.
So here we go again. This morning, natural gas futures jumped to $8.29 per million British thermal units, adding to the jumps over the past week. The price has regained much of the lost rally, up about 30% from last month, and more than double what it was a year ago. So this won’t help CPI readings at all:
The Freeport LNG plant remains closed due to safety concerns. The Federal Energy Regulatory Commission (FERC) said Tuesday that it will inspect the plant in September. So perhaps, the plant will start loading LNG tankers again later this year.
In the summer in the United States, energy consumption rises due to the increased use of air conditioners. This summer there was a deadly heat wave with strong triple digit temperatures across much of the United States, power consumption straining electrical grids, and demand for natural gas by power generators soaring.
So it might have been a good idea to cut LNG exports just before the heat wave and leave some extra gas for US consumption to run air conditioners and keep the price in the US from rising from the stratosphere to the ionosphere.
This is the development of LNG exports from the United States to the rest of the world. The United States also exports pipeline natural gas mostly to Mexico, but also to Canada, and pipeline natural gas exports are not included here. This graph only shows LNG exports, although from April, the most recent data available from the EIA does not yet show a drop in exports due to the fire at the LNG terminal:
Historically, the price of natural gas in the United States, even at the current level, is not all that extraordinary.
Before a large-scale boom in hydraulic fracturing, the United States turned into the world’s largest producer of natural gas, and created a glut in the United States that caused prices to collapse, there was pressure, when LNG terminals were built in order to import Natural gas (now converted to export terminals), prices have been very high for years.
Today’s price is back to the range it was in between 2004 and 2008:
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