Business

Price of natural gas soars as cold grips homes, drillers

The frigid winter is setting the price of natural gas on fire. On Friday, the price in the futures market rose to within a whisper of $5 per 1,000 cubic feet, the highest level in three and a half years. (Associated Press)
The frigid winter is setting the price of natural gas on fire. On Friday, the price in the futures market rose to within a whisper of $5 per 1,000 cubic feet, the highest level in three and a half years. (Associated Press)

NEW YORK – The frigid winter of 2014 is setting the price of natural gas on fire.

The price in the futures market soared to $5.18 per 1,000 cubic feet Friday, up 10 percent to the highest level in three and a half years. The price of natural gas is up 29 percent in two weeks, and is 50 percent 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 percent 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,” energy analyst Stephen Schork said. “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.

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, 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.

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.

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 2010.

That could push prices back down somewhat in the coming weeks. If, that is, the weather warms up later in February and March.



There are nine comments on this story »



Blogs


Complete interview with Gabe Marks

Our most recent story about prolific Washington State wide receiver Gabe Marks tells the story of a particularly insightful interview we had last spring. That story, "Gabe Marks is a ...


Weekend Wild Card — 7.23-24. 16

I'm facing another weekend of fence-building with my neighbor. Once we get the back fence built, I have one last honey-do item on the agenda and then it's kick back ...


You have 50 choices

S-R intern Tyson Bird brought cookies to work on his last day with us. It has been a pleasure to have him here. I first printed a column submission from ...



Saving for the future

sponsored According to two 2015 surveys, 62 percent of Americans do not have enough savings to handle an unexpected emergency, much less any long-term plans.



Sections


Profile

Contact the Spokesman

Main switchboard:
(509) 459-5000
Customer service:
(800) 338-8801
Newsroom:
(509) 459-5400
(800) 789-0029
Back to Spokesman Mobile