Jess Futures: What is behind the sharp fluctuations in natural gas prices

The freeze in Texas is one of those events that threatens to upend the way power companies operate. The crisis, which saw gas prices rise double to four digits, has prompted an in-depth study of the Texas grid electricity market steps to make sure it doesn't happen again. Now, gas prices are rising again, many bills for February have been paid. Dissatisfaction is spreading in many states affected by the February cold. In California, people are being warned that their bills will go up even higher. In fact, the free market operates for the purposes for which it was created. The fact that ways of working are always compatible with the needs of one group another is an entirely different matter. Understandably, however, there have been calls for increased federal oversight of state power systems to avoid a repeat of the crisis, which in Oklahoma alone caused bills to spike by as much as $5bn during the week of the crisis, according to JFS.

Increased federal oversight is fine, but sometimes prices depend entirely on fundamentals, as they do now. There has been a new surge in natural gas prices as big importing countries realise they are producing enough. Meanwhile, some parts of the United States are sweating through the first heat wave of the summer. In California Texas, gas electricity prices have soared as temperatures have risen. State grid operators are urging locals to be prepared to conserve energy. With gas supplies so tight, prices are likely to rise further. Exports of liquefied natural gas will contribute to this trend. According to the U.S. Energy Information Administration, U.S. natural gas prices are on track to rise this year next after hitting record lows last year, driven by the rebound in domestic consumption we've already seen increased exports of liquefied natural gas. 'Domestic prices are likely to be higher, given the supply demand conditions in our two main export markets, Europe Asia,' JFS said.

Natural gas stocks in Europe are at their lowest level in a decade, causing the region's benchmark price to surge to a 13-year high. Natural gas prices in Asia are also at multi-year highs. U.S. gas producers will be happy to help meet at least some of that surge in demand, which means the upside potential for domestic gas prices will be even stronger, at least through the summer. The freeze in Texas set off a series of accusations between gas suppliers power companies, culminating in an investigation by the Federal Energy Regulatory Commission into allegations of market manipulation. Whether the Federal Energy Regulatory Commission finds evidence of manipulation, the basic story remains the same. If gas supplies are tight electricity demand rises in response to higher temperatures, bills will be higher.

In Texas, regulators lawmakers ordered power plant operators to prepare for a harsh winter to avoid a repeat of February's crisis. California is expanding its renewable power generation capacity. With winter far away the sun still shining at night, Texas, California many other states are turning to gas for electricity. At the same time, national gas stocks are falling. According to the EIA's newer weekly data, net injections totaled 55 billion cubic feet in the week ended June 18, falling short of analysts' expectations stabilizing the upward trend in prices. Incidentally, JFS believes these prices were at their highest levels in nearly two a half years at the start of this week, driven by the heat wave production conditions. As recently as two years ago, America was swimming in natural gas, exploited by shale drillers as a byproduct of their primary target oil. Domestic demand is expected to remain flat for the foreseeable future before beginning a steady decline. Right now, demand is high supply is short. Power cuts are also on the rise again, all because gas supplies are low. With shale drillers still wary of raising production too soon, relief anywhere is unlikely in the short term.

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Source: International Gas Network