U.S. natural gas prices fell on Tuesday, topping levels last traded during a historic commodity price boom in 2008, before reversing course to fall on news that a major exporter of fuel would remain closed longer than expected.
The price movements were a reminder of the notorious volatility of the gas market. Even after the late decline, prices remained at levels last seen before shale drilling ushered in a decade of abundant supplies.
The shale bounty has led to the construction of shore terminals to export liquefied natural gas, a reversal of LNG import plans established when US prices were higher.
The importance of foreign demand was demonstrated on Tuesday when Freeport LNG delayed plans to restart its Texas export terminal from October to November. The terminal, which accounts for about a fifth of the total LNG export capacity in the United States, has been closed since it was damaged by an explosion in June.
The delay suggests that some gas shipments will be temporarily blocked in the United States. US gas prices fell 5% to $9.193 per million British thermal units.
Earlier, the benchmark rose above $10/million Btu for the first time since 2008, as utilities, industries and traders scoured the markets to fill storage sites ahead of the winter heating season, worried further reductions in Russian supplies to Europe.
Gas prices in Europe are much higher than in the United States as fears of severe winter shortages grip the market, raising fears that energy costs could tip economies into recession. Prices on the mainland hit an intraday high of €295 per megawatt-hour on Monday, or around $79/min Btu, although they were down slightly on Tuesday.
James Huckstepp, analyst at S&P Global Commodity Insights, said high temperatures and low output from wind turbines in Europe were also helping to push up prices. “The recent warm, dry and relatively calm weather is as bullish as it gets,” he said.
In the United States, a series of heat waves this summer has pushed demand for gas-fired power plants to record highs as power generators ramp up output to meet demand for air conditioning, the government said on Tuesday. Energy Information Administration.
High international gas prices have also allowed U.S. export terminals to operate at peak rates this year, with traders seizing arbitrage opportunities by shipping gas overseas. Freeport said the initial startup will produce LNG below full capacity, and it no longer expects to reach peak production until March 2023.
Prices have encouraged more drilling activity, but gas production in the United States has not kept pace with demand. As of mid-August, national working gas inventories stood at 2.519 tonnes of cubic feet, about 13% below average.
Most US LNG shipments this year have gone to Europe, to which US President Joe Biden has offered supplies to help offset sanctions-related losses on Russia following its invasion of Ukraine.
But competition for LNG is expected to intensify as buyers from South Korea, Japan and China begin to seek to secure supplies ahead of winter.
Gas prices in the UK have been slightly lower than in Europe for much of the summer, as the country has excess LNG import capacity, allowing it to import LNG and to send it to Europe via pipelines to help them fill the storage sites.
However, the benchmark UK gas price is around $61/million Btu, similar to bids seen in the Asian market for spot cargoes this week.