Natural gas dips after latest multi-year high

European natural gas prices rise to record highs as energy crisis anxiety builds

US natural gas prices dipped on Thursday, after recently rising to their highest level in almost eight years. 

Spot US natural gas hit $5.684 per million British thermal units (MMBtus) on Wednesday, having started the year around $2.6/MMBtu. 

Rising demand and limited supply has been a consistent global phenomenon for the commodity in 2021 and has only accelerated in recent months.

With June 2021 the hottest June on record for 48 US states, usage of air conditioning units surged. This sent electric power generation to record levels and thus increased natural gas demand. 

Supply disruptions as a result of late August’s Hurricane Ida significantly impacted natural gas supply along the US east coast. According to the Bureau of Safety and Environmental Enforcement, around 1.8 billion cubic feet per day of natural gas production from the Gulf of Mexico remained offline more than a week after the fifth-largest hurricane in US records made landfall. 

Inventories and exports

US exports of liquefied natural gas (LNG) rose to record highs in 2021, up 41% year-on-year in the first six months alone. 

Strong exports combined with strong domestic demand and severe output disruption have caused US natural gas inventories to fall substantially, further supporting the commodity’s price. 

In its latest report, the US Energy Information Administration stated: “We forecast that inventories will end the 2021 injection season (end of October) at almost 3.6 trillion cubic feet, which would be 5% below the five-year average.”

Asia

Demand for LNG in Asia has also been consistently strong in 2021, with China reaching record levels in power generation and even having to forgo certain ‘green’ commitments and reopen fossil fuel power stations to satisfy demand. 

LNG imports into Asia from January to July totalled 45.8 metric tonnes, a 26% year-on-year increase. 

Europe

This demand has had a knock-on effect in Europe, making natural gas more expensive than normal as Russia directs its supplies eastwards. In recent days anxiety has built as to whether the continent will endure an energy crisis this autumn and winter. 

On Wednesday the October natural gas contract at the Dutch TTF hub, a leading European benchmark, rose to 79 per megawatt-hour, a record high. 

In the UK wholesale gas and electricity prices rose to all-time highs. Although demand is high, supply problems are also thought to be a significant factor. With renewable energy sources seemingly unable to consistently plug the gap left by unfashionable fossil fuel methods. 

On Monday, one of the UK’s last remaining coal power stations, which is scheduled to close in 2022, was fired up for the first time since March after wind farm production fell below a key level. 

A fire at a power facility in Kent on Tuesday caused natural gas prices to surge and the National Grid to warn of potential disruption that could last until March. 

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