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Making Cents of Natural Gas Prices: A Look into Why We Can Expect Prices to Stay High this Winter

Natural Gas as a Heating Fuel

Natural gas is a nonrenewable source of energy that can be used as a fuel for generating heat and power or as a feedstock in the petrochemical industry. Today, natural gas is used to heat half of the homes in the United States and generate 33% of the country’s electricity. It can also be used as a transportation fuel for vehicles, such as buses, taxis and trucks. In addition, natural gas powers many large buildings such as schools, hospitals and factories where using other forms of heating would not be cost effective or efficient. Finally, natural gas is used to generate heat and power in manufacturing processes and is a feedstock for the production of plastics and other important chemicals, as we’ve previously discussed.

Natural gas is an abundant energy source in North America as a result of hydraulic fracturing technology and the scope of subsurface shale deposits which contain the fuel.  The current lower price and cleaner burning characteristics in comparison to other fossil fuels, such as oil and coal, make it an attractive substitute. Between 2009 and 2030, natural gas consumption is projected to grow 32%, which will create demand for more development.

Rates of U.S. Natural Gas Production and Consumption
Image Credit: U.S. Energy Information Administration (EIA)

Regulatory Restrictions Causing a Limit on Natural Gas Supply

In general, approximately 90% of natural gas wells use fracking to liberate the hydrocarbon from rock. While fracking raises environmental concerns about depletion of freshwater supplies, air pollution and potential earthquakes, these drawbacks appear to be outweighed by positive consequences of use, including significantly lower greenhouse gas emissions and cost relative to other fuels. Despite those major benefits, the current administration appears set on limiting access to natural gas through obfuscation of pipeline project approvals.

Two recent examples of pipeline cancellations include the PennEast and Atlantic Coast Pipelines.

PennEast Pipeline was proposed to run from Pennsylvania to New Jersey, but due to difficulty of earning a water quality permit in New Jersey the project was canceled. This cancellation raises a concern for natural gas supplies originating in the Appalachian region, more specifically the Marcellus/Utica shale. This shale has provided the largest amount of natural gas domestically and is a major contributor to the excess supply that has allowed for liquefied natural gas (LNG) exports. The Appalachian region is already considered restrained by lack of pipelines, which is a reality that is only enhanced by the termination of PennEast.

PennEast Pipeline
Image Credit: PennEast Pipeline

Another major pipeline cancellation has been the Atlantic Coast Pipeline project, an ambitious  600-mile development which would have carried natural gas from West Virginia to the Atlantic seaboard.  This project was being spearheaded by Duke Energy and Dominion and was cancelled as a result of an unacceptable level of execution risk brought on by uncertainty arising from permit challenges by environmental groups. As a result, the $8 billion project will not be consummated and population centers in North Carolina and Virginia will be more reliant on other fuels for heating and industrial processes.

Atlantic Coast Pipeline Route
Image Credit: WRIC

Unfortunately, these projects develop over a very long time horizon and require significant capital and risk on the part of the developers to complete successfully.  Once it’s obvious the supply that’s been restricted is required to satisfy demand in these regions, it will be too late.

Natural Gas Demand Increase Expected for Upcoming Cold Winter

According to NOAA’s Climate Prediction Center, the upcoming winter months are expected to bring below-average temperatures in certain areas across the United States. This is consistent with La Nina winter patterns, which will bring warm temperatures to the Southern tier of the United States and cooler to the Northwestern region. Winter months already place a high demand on natural gas to be used for residential and commercial heating, so with the weather induced demand increase, prices are expected to escalate. Chicago utilities companies have projected that heating bills will be 50% higher than last winter and New York is expecting to follow suit with a 21% increase. It has been forecasted that on average, natural gas bills will rise by 30% this winter. This is due to the consumption increase, which is expected to rise by 2.4% due to the 2.6% forecasted increase of heating degree days. This will continue the upward pricing trend we have seen domestically since January.

NOAA Winter 2021 Temperature Outlook
Image Credit: National Oceanic and Atmospheric Administration (NOAA)

LNG Export Pricing on the Rise

A huge benefit of blocks is that you can edit them in place and manipulate your content directly. Instead of having fields for If you recall, we recently addressed the European Energy Crisis and the global market impact it is having. The increase in LNG prices across the globe and especially in Europe and Asia have only continued to skyrocket, with October 6 being the largest single-day JMK price rise since 2009, at a record $56.326/MMBtu. Although the United States has not hit the same astronomical high as the Asia-Pacific market, you can see from the EIA table of monthly prices that a fundamental upward shift in prices is underway. The domestic limitations of LNG exports will tend to exacerbate global price volatility and may keep a near term lid on natural gas prices in the States.

Henry Hub Natural Gas Prices (Monthly Historical)
Image Credit: Energy Information Administration (EIA)


As the cold winter months approach us and demand for natural gas continues to climb due to heating needs, we will continue to see a rise in natural gas prices globally with impact to the US market. Although with higher demand, one might assume that supply would follow, that is not the case within the natural gas market, due to artificial restrictions and uncertainty being imposed by politicians, regulators and environmental groups. 

These artificial supply constraints nearly guarantee that there won’t be opportunities to lower fuel costs through incremental supply additions any time soon. The result is going to be shock and awe when consumers get their heating bills this winter.

Andrew Schaper is a professional engineer and principal of Schaper Energy Consulting.  His practice focuses on advisory in oil and gas, sustainable energy and carbon strategies.

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