If severe cold breaks out this winter, natural gas prices will be detonated again.

On Thursday, September 9th, US natural gas contract prices rose to $5 per million British thermal units (mmBtus) for the first time in October, doubling since February 2014, and are expected to continue to rise.

European natural gas continues to hit an all-time high, rising more than 11 per cent last week. In late European trading on Friday, ICE UK natural gas futures rose 2.18 per cent to 145.25 pence per kcal, while US stocks rose to 145.94 pence at the start of the day, an all-time high and up about 11.35 per cent last week.

The benchmark futures price of natural gas in East Asia is four times higher than it was a year ago, and the spot price of natural gas in Europe is five times higher than last year. Generally speaking, the price of natural gas in Europe is lower than that in Asia, but now prices have to rise in order to introduce more liquefied natural gas.

From the perspective of reserves, the current situation is even more worrying. The supply of natural gas in the United States has always exceeded demand, but the reality is that winter reserves are also lagging behind. The amount of natural gas stored underground last week was 7.4 per cent below the five-year average and just above the level of 2018, when gas stocks entering the winter were at an all-time low, according to the US Energy Information Administration.

If this winter is colder than normal, natural gas prices are likely to rise further, or the most expensive in 13 years.

How did the price of natural gas become so fierce step by step?

American consumption is not the reason. As of June, total domestic natural gas consumption was the same as the 2020 level, according to the U.S. Energy Information Administration.

The real culprit is international demand. Normally, Stan Brownell, an analyst at Argus Media, points out that excess natural gas in summer will be stored underground if it is not liquefied and exported to foreign markets. But there is not so much domestic hoarding this year. In the first half of this year, the US exported about 10 per cent of its natural gas, up 41 per cent from a year ago, according to EIA.

Despite the rapid pace of LNG imports this year, Asia and Europe may need to stockpile more LNG to prepare for the winter. Non-US LNG exporters have not invested so much supply because of various maintenance-related obstacles. Europe, in particular, is in danger of entering winter because its most important gas supplier, Russia, has been slowing gas supplies.

On the supply side, as unprecedented high temperatures across the United States, especially in the northwest, stimulate demand for air conditioning this year, more natural gas is used throughout the summer, resulting in less gas stored in winter; in addition, the US oil industry has also reduced production due to Hurricane Ida, and 77.3% of oil production in the Gulf of Mexico remains closed (natural gas produced in the United States is mainly made up of shale gas and tight gas).

Samer Mosis, an analyst at S & P, pointed out that Asia still needs more supplies than usual in September and October to reach appropriate levels before the start of winter. At the same time, Europe's natural gas reserves are 16% below the five-year average and are at an all-time low in September. Later this year, according to data providers, the hunger and thirst of the international market will depend on uncontrollable variables, including how cold winters will be in the rest of the world, the speed at which Russia will start the controversial Nord Stream 2 pipeline and whether Russia has resumed gas shipments to Europe.

Source: Wall Street

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