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Gas prices in the United States are projected to increase by at least 25% due largely because of the increasing heat.
The current price of natural gas in the market has been steadily increasing, even more than doubled, amidst the rising tensions between Ukraine and Russia. This Tuesday, it went up 4% higher due to the intense heat in Southern US that’s forecasted to continue for several months.
Matt Palmer, a Senior Director at the North American natural gas in S&P Global Community Insights, said that considerable evidence dictates higher prices for gas in the next months.
“You’re seeing exports running full out on LNG; power burn from the power sector… layer in the heat we’re seeing and the expectation that the southern tier of the continent in May and June will see well above normal temperatures. That’s a recipe for higher prices.”
According to the National Weather Service, the states of Oklahoma, Louisiana, and Texas are bound to be hit by hot spells that will affect many sectors.
The rising gas price is coupled with the shortage of supply in the US. The developments are a major blow to the manufacturing and shipping industries, relying heavily on these raw materials. The impact will also be felt by consumers who depend upon transportation of goods and services and other jobs that need the products to function properly.
With these challenges come forth alternatives like coal. However, turning to coal is a way more expensive solution. That is why Palmer explained that the likelihood of a price surge of gas is “getting stronger by the day.”
The US does not fully depend on gas imports for supply, but the prices soared during the pandemic. Affected industries have now taken steps to get back on track to counter the supply shortage.
However, the rapid changes in the climate affected the supply of gas in the United States. The cold winter days were immediately followed by a heatwave. Experts say the change meant higher demand for gas. In addition, the industry’s production rate per day has considerably decreased – from 118.7 billion cubic feet to 115.2. The conditions forced suppliers to use the reserves they had for the next winter.
According to Bespoke Weather, a weather firm, total gas demand will increase in the next 15 days. The persistence of La Nina is a major factor in this.
TortoiseEcofin senior portfolio manager Rob Thummel said that what is happening now is surprising. According to him, May is a relatively ‘calm time for energy markets.’ “I guess it’s an early dose of summer. If we continue to see hot weather, that is likely to have the same effect as extremely cold weather. It’s going to have an impact,” he explained.
Eventually, said Thummel, demands will be curbed now that many groups have restarted their operations.
Opinions expressed by CEO Weekly contributors are their own.