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Why are natural gas prices so high? McCormick, Myles; Jacobs, Justin; Chu, Amanda . FT.com ; London (Jul 27, 2021).

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ABSTRACT (ENGLISH) Natural gas prices feel the heat US natural gas prices have surged to more than $4 per million British thermal units,

the highest since late 2018, a rare rally in a market that has been weighted by oversupply since the shale gas

production boom started a decade ago. The National Oceanic and Atmospheric Administration, a federal agency,

said last month was the hottest June on record in America, as a climate change-fuelled 1,000-year heat event

baked the Pacific Northwest. The Energy Information Administration, a federal forecaster, expects coal’s share of

US power generation to jump back to 24 per cent this year, from 20 per cent last, on higher natural gas prices.

(Justin Jacobs) Pressure on ageing power grids fuels blackout fears Europe and North America face the prospect

of serious and persistent blackouts in the coming years if countries fail to quickly rewire their ageing power grid

infrastructure, according to the head of one of the world’s biggest cable manufacturers. FULL TEXT One thing to start: The British government is exploring ways to remove China’s state-owned nuclear energy

company from future power projects in the UK —prompting warnings the group could respond by abandoning

current projects.

Welcome back to Energy Source.

We start today with a look at natural gas prices, which have jumped to their highest level since 2018. Justin

Jacobs looks at what’s driving the spike.

Our second item is an interview with the chief executive of Nexans, one of the world’s biggest cable makers, who

argues that blackouts will become a growing problem if the US and Europe do not rapidly refresh their creaking

power grids.

And with another heatwave set to drive up air conditioning use across central parts of the US, we chart how energy

costs weigh heavier on certain groups of Americans.

Thanks for reading.

Natural gas prices feel the heat

US natural gas prices have surged to more than $4 per million British thermal units, the highest since late 2018, a

rare rally in a market that has been weighted by oversupply since the shale gas production boom started a decade

ago.

What’s fuelling the spike in prices?

High temperatures are driving strong demand as Americans crank up their air conditioners to beat the heat. The

National Oceanic and Atmospheric Administration, a federal agency, said last month was the hottest June on

record in America, as a climate change-fuelled 1,000-year heat event baked the Pacific Northwest.

And there’s more hot weather on the horizon as a “heat dome” moves over Texas —as your Houston correspondent

can attest to —and much of the US Midwest this week. (See more from Amanda below on the uneven toll the heat

is inflicting on American communities.)

Typically, power producers would start switching away from gas and towards coal at these prices, taking some of

the steam out of the rally. But as analysts at the energy investment bank Tudor Pickering &Holt point out, “coal

generation has failed to pick up materially and gas’ share of the thermal stack has remained resilient”.

At the same time, supply has not surged on the higher prices in the way it has in recent years, when growth-hungry

producers were quick to drill on any hint of higher prices. This reflects the new reality of a slower-growing US gas

market, which has been transformed by a wave of consolidation (now happening in oil as well) and shareholder

pressure to keep a lid on output.

“The market is searching for a price that will back off sufficient power sector demand or entice enough price-

elastic supply to come down the pipe,” analysts at Energy Aspects, an industry consultancy, wrote in a note.

For now, that search seems to have found that prices are headed higher. The Henry Hub forward curve, the main

price benchmark, is above $4 through the end of the winter, which would mark the longest sustained period above

that price level since 2014.

What would be the fallout of one of the biggest natural gas price rallies since the shale boom began? A few areas

we’ll be watching:

1.

While coal burning has not picked up yet in the ways some analysts had expected, it almost certainly will if these

natural gas prices persist. The Energy Information Administration, a federal forecaster, expects coal’s share of US

power generation to jump back to 24 per cent this year, from 20 per cent last, on higher natural gas prices. It could

reverse a trend towards lower carbon emissions from the power sector and set back the Biden administration’s

climate efforts.

2.

It will be another tailwind for US oil and gas producer finances, along with $70 a barrel oil, after last year’s epic

bust. While it might be obvious to point out that natural gas producers will see a boost to their profits from higher

prices, many often underestimate how much they can lift even predominantly oil-focused producers’ bottom line.

3.

Higher natural gas prices could also feed another data point into the great inflation debate. American industry has

grown accustomed to some of the lowest energy costs in the world. Energy Aspects, the consultancy, says it does

not expect manufacturers to pull back demand at these prices as the economic reopening gathers pace, but

argues that increased energy costs “are likely to be passed on to end-use customers instead.”

(Justin Jacobs)

Pressure on ageing power grids fuels blackout fears

Europe and North America face the prospect of serious and persistent blackouts in the coming years if countries

fail to quickly rewire their ageing power grid infrastructure, according to the head of one of the world’s biggest

cable manufacturers.

Power lines on both sides of the Atlantic built in the wake of the second world war are already well past their sell-

by date. Now, as countries electrify sectors from transport to heating in order to tackle climate change, grids risk

becoming overwhelmed.

“The issue we have is that this power grid is 50 years [old],” Christopher Guérin, chief executive of French cable

maker Nexans, told ES. “So, each year that goes by, you have a [growing] risk of power outages —blackouts —in

cities.”

Making ever greater demands of today’s creaky American and European energy infrastructure, he said, is like

forcing a clapped out car to drive at ever greater speeds —something is bound to go wrong eventually.

Grids from Milan to Houston have already experienced significant disruption this year.

Per capita power demand has jumped from 1.4 megawatt hours (MWh) in 1975 to 3.5 MWh in 2019. As countries

look to electrify their economies, that is set to climb again to 3.8 MWh by the end of the decade and 4.4 MWh by

2040, according to Nexans.

In the US, the Department of Energy has estimated that power outages already cost the economy up to $70bn

annually. President Joe Biden has blamed “chronic under-investment” in the country’s grid infrastructure and

proposed spending $100bn to upgrade the system as part of plans to shift America to carbon-free power by 2035.

But it is still unclear how much of Biden’s wish list, which includes tax credits for renewables and transmission

lines, will make it into a bipartisan infrastructure package set to be finalised this week.

America’s rewiring plans —coupled with similar efforts under way in Europe as part of Brussels’ Green Deal

programme —is good news for cable makers like Nexans and its Italian rival Prysmian.

“When you analyse the Europe Green Deal investment, when you analyse Biden’s ‘Build Back Better’ plan, when you

go into the details of what Xi Jinping is doing in China in regards to the carbon neutrality objective in 2060 . . .

when you sum all that, we are at the beginning of a huge electrical revolution,” said Guérin.

The market for wire and cables today sits at around $100bn —about a quarter of which is in the US. By 2030 that

figure is set to rise by more than half to $156bn, said Guérin.

Over the coming decade, Nexans plans to divest the parts of the company not focused on electrification

—shedding the 45 per cent of its business that makes cables for sectors like automotive and telecoms —in a bid to

focus all of its resources on capturing this rising demand.

“All countries need to massively invest in the renewal of their power grid,” he said. “It will be massive in the next 20

years.”

(Myles McCormick)

Data Drill

Many US households are facing escalating energy costs as a heat dome gathers across the country, but these

costs will not be felt equally. A report from the American Council for an Energy-Efficient Economy found that black

households are nearly twice as likely as their white counterparts to be severely burdened by energy costs. Low-

income households and elderly households also shoulder a disproportionate toll.

Pandemic lockdowns, job losses and wage cuts have exacerbated the problem. A survey conducted by Indiana

University researchers found that one in five respondents could not pay their energy bills last summer. While many

states implemented utility moratoria, most have expired and millions of Americans are now being faced with

overdue bills. The National Energy Assistance Directors’ Association (NEADA) estimates Covid-19 utility debt to be

as much as $40bn.

As customers and organisations like the NEADA push policymakers to cancel utility debt and expand federal and

state aid programmes, there are signs of progress. In May, Senator Jeff Merkley introduced a bill that would cancel

utility debts for low-income households. (Amanda Chu)

Power Points

*

The shale patch is consolidating, creating a new breed of “super independents.”

*

Despite division, G20 adopts new climate targets.

*

Big Oil’s carbon capture project shows mixed results.

*

Avocados in Sicily? How climate change is transforming where food is grown.

*

Already California’s largest wildfire this year, the Dixie Fire continues to grow. (WaPo)

*

Women in the Niger Delta demand Chevron clean up the mess it left behind. (NYT)

Crédito: Myles McCormick, Justin Jacobs and Amanda Chu DETAILS

Subject: Gasoline prices; Cables; Blackouts; Infrastructure; Costs; Natural gas prices; Carbon;

Low income groups; Energy; Climate change; Households; Coal; COVID-19

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Database copyright  2022 ProQuest LLC. All rights reserved.

Business indexing term: Subject: Gasoline prices Infrastructure Costs Natural gas prices

Location: United States--US; China; Europe

Identifier / keyword: US; Houston; Europe; Legislative Bodies; G20; Executive and Legislative Offices,

Combined; US Government; Securities Brokerage; Energy Information Administration

US; China; Newsletter; North America; Xi Jinping; Energy Source; Texas; Justin

Jacobs; Utilities; Milan; Energy Aspects Ltd; Energy sector; Sicily; Emily Goldberg;

Myles McCormick; Copper Rolling, Drawing, Extruding, and Alloying; Prysmian SpA;

Jeff Merkley; Crude Petroleum Extraction; Chevron Corp; Fiber Optic Cable

Manufacturing; Nexans SA; Administration of Air and Water Resource and Solid

Waste Management Programs; National Oceanic &Atmospheric Administration;

Natural gas; Joe Biden; Christopher Guérin

Publication title: FT.com; London

Publication year: 2021

Publication date: Jul 27, 2021

Publisher: The Financial Times Limited

Place of publication: London

Country of publication: United Kingdom, London

Publication subject: Business And Economics

Source type: Trade Journal

Language of publication: English

Document type: News

ProQuest document ID: 2564154098

Document URL: https://www.proquest.com/trade-journals/why-are-natural-gas-prices-so-

high/docview/2564154098/se-2?accountid=7036

Copyright: Copyright The Financial Times Limited Jul 27, 2021

Last updated: 2021-08-26

Database: Research Library

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