Just when we thought the plunge in natural gas prices might take pressure off inflation, it starts all over again.
By Wolf Richter for WOLF STREET.
So we have a little situation here. By early June, the price of natural gas futures in the US had spiked to over $9.50 per million Btu, roughly triple the price from a year earlier, and quadruple the price in 2020. This spike was caused by US exports of LNG, which are booming, with new LNG terminals coming online one after the other since 2016. Exports added to demand for US natural gas and increasingly linked US natural prices to global LNG prices.
And then, on June 8, a fire shut down the huge Freeport LNG natural gas liquefaction plant in Texas, which cut LNG export capacity by 17%. Over the following four weeks, US natural gas futures plunged by over 40% into the $5.50 range. And it was cited as one of the reasons why inflation already peaked again.
So here we go again. This morning, natural gas futures jumped to $8.29 per million Btu, adding to the jumps over the past week. The price has regained much of the lost spike, and is up about 30% from a month ago, and has more than doubled from a year ago. So this isn’t going to help CPI readings at all:
The Freeport LNG plant remains shut over safety concerns. The Federal Energy Regulatory Commission (FERC) said on Tuesday that it would inspect the plant in September. So maybe, the plant will start loading LNG tankers again later this year.
In the summer in the US, power consumption spikes due to increased use of air conditioning. This summer, there has been a deadly heatwave with blistering triple-digit temperatures over much of the US, and power consumption strained electric grids, and demand for natural gas by power generators spiked.
So maybe it was a good thing that LNG exports got cut just ahead of the heatwave and left some extra gas for US consumption to power air conditioners and keep the price in the US from spiking from the stratosphere into the ionosphere.
This is the development of LNG exports from the US to the rest of the world. The US also exports natural gas via pipeline to Mexico mostly, but also to Canada, and those exports of pipeline natural gas are not included here. This chart shows just LNG exports, though April, the latest data available from the EIA and doesn’t yet show the decline in exports due to fire at the LNG terminal:
Historically, the price of natural gas in the US, even at today’s level, is not all that extraordinary.
Before a large-scale boom in fracking turned the US into the largest natural gas producer in the world, and created a glut in the US that caused the price to collapse, there was the squeeze, when LNG terminals were being built to import natural gas (now converted to export terminals), and prices were very high for years.
Today’s price is right back in the range where it had been between 2004 and 2008:
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