Natural gas prices are now breaking highs of the previous five years. The U.S. Energy Information Administration’s recent Natural Gas Monthly release analyzes the current state of residential and commercial natural gas, and provides some context into the forces driving up prices.
Average prices have steadily risen over the last half-decade for both residential and commercial use. Prices for both uses reached a five-year high in 2021. These highs are now being eclipsed in 2022 and the rise is expected to carry on into 2023.
In the first seven months of 2022, average residential natural gas prices were 25 percent higher than in the same period of 2021, reaching $13.25/Mcf. Commercial prices were a third higher year-over-year, with average prices in the same period at $10.50/Mcf. Higher prices have not deterred use, though, as the EIA also forecasts domestic natural gas consumption to reach record breaking levels in 2022.
However, domestic demand alone is not driving prices as demand from starved European markets for U.S. LNG has exacerbated the already increasing prices. American gas companies have been willing to meet the demand of international markets, increasing LNG exports to such a degree that the U.S. became the largest exporter of the fuel for the first half of 2022. This demand is not expected to dwindle any time soon given the current geopolitical circumstances in Europe and its impact on their energy security. In fact, LNG exports to Europe, and in other international markets, is expected to continue to grow as more LNG exporting projects are completed in the U.S.
Domestic gas production is expected to continue to rise, as it has since the start of this year, and continue into 2023. The rise is not anticipated to be significant though - an increase of 1.4 Bcf/d on average year-over-year. American gas producers are facing difficulty completing pipeline projects, which are need to transport gas to end markets, and have prioritized maintaining strong balance sheets in lieu of major capital projects, while keeping production at maintenance levels.
Additionally, the recent decision by OPEC to curtail oil output could further complicate the world’s energy markets, and could lead to even higher gas prices globally. The energy crunch is not likely to be resolved quickly, as winter approaches and demand for heating fuel increases.