The price of natural gas spikes as temperatures fall

By Clifford Kraus / New York Times News Service

HOUSTON — Natural gas prices spiked nearly 10 percent Friday to levels not seen since 2010, as another wave of freezing weather brought surges of heating and electricity demand.

Bone-chilling weather had already strained the natural gas pipeline system serving the Northeast in early January, and the thermometer’s latest plunge caused natural gas prices to rise more than 5 percent nationally on each of four consecutive days.

Friday’s price of $5.20 per thousand cubic feet was the first time gas had crossed the symbolic $5 threshold in 31/2 years, although the current price is still roughly one-third of the gas price before the 2008 financial crisis.

Energy experts said the new price increases were likely to mean higher electricity and heating costs over the next year, although utilities typically use hedging instruments and strategies on commodity exchanges and other markets to stabilize retail prices. There has also been some fuel switching from natural gas to coal, partly reversing a trend in recent years.

The sudden surge in gas prices, following a slow climb over the last year and a half, represents a break from a deep slump in gas prices between 2009 and early 2012, because of a frenzy of drilling in shale gas fields across Texas, Pennsylvania, Louisiana and Arkansas.

With gas prices plummeting to a low of $1.92 per thousand cubic feet in April 2012, less than one-fifth of gas prices in Europe and Asia, the domestic fertilizer, plastics and chemical industries began to enjoy an upturn, with some industries relocating plants from abroad back to the United States. At the same time, cities and businesses began to convert their bus and truck fleets to run on natural gas, taking advantage of the low gas prices, further bolstering demand, and natural gas producers slowed their drilling.

Energy analysts say the price increase this month is almost entirely related to the weather, but it appears to be lasting.

“We’re going to be facing higher prices through the winter at least,” said Addison Armstrong, senior director of market research at Tradition Energy, a consultancy, “because of the double shot of arctic weather, which is expected to extend at least into early February, and because forecasts for inventories for the end of winter look to be the lowest in a decade.”

Inventories a week ago were 2.42 trillion cubic feet, 13 percent below the five-year average for mid-January. The natural gas price, up by nearly one-third over the last two weeks, is roughly 50 percent higher than last year.