Source: https://www.wsj.com/articles/natural-gas-prices-energy-bills-ea3ea9da?mod=hp_lead_pos7
Last year was the most volatile on record for natural gas, boosting the cost to heat homes, generate electricity and manufacture economic building blocks. Benchmark gas futures, which determine what millions of Americans pay for heat and electricity, swung by at least 7% on 44 days last year, the most since at least the early 1990s. The wild ride has continued this year, with 12 daily moves of 7% or greater. Infrastructure to export more gas is being built, but pipeline projects to move more gas within the country have been slowing. Analysts, traders, and big gas buyers expect this instability to become the norm.
Trading programs that follow the price trends have come to dominate commodities exchanges and amplify moves up and down. The severe swings diverge across regions, with gas prices in California surging to more than six times the national benchmark price at the time. Hot weather cut heating demand in parts of the country this winter and knocked prices in February below a threshold rarely breached over the past 20 years.
Plummeting gas prices in February pulled down U.S. energy costs from January. They helped cool overall inflation, but analysts warn that could set the stage for spikes if summer is sweltering. Policy decisions from the White House to state capitols have exacerbated the situation, blocking and discouraging new pipeline construction and hastening the closure of coal-fired power plants. This was different from the promise of the shale boom of the 2000s, which was supposed to provide an inexpensive, reliable supply. In Colorado, Emily Hodge was shocked by a nearly $918 bill for heating and electricity in December, almost double from a year earlier. In January, her bill ticked even higher—to about $959.
Ms. Hodge has occasionally worn a coat indoors to stay warm this winter without cranking up her thermostat, and she has raised her price for shooting family portraits this summer to $1,200 a session, up from $750. The increase has scared away some clients, but she added that “we have to do something.”
In California, where supplies dwindled after a pipeline exploded in 2021, power companies and other businesses bid up prices for January gas deliveries to about $54 per million BTUs, compared with a rise to about $7 in the national benchmark price. Pabco Building Products, which uses gas to make drywall from gypsum mined in the mountains outside Las Vegas, said wallboard prices would have to double to cover January’s gas bills. The tremors come a decade after innovations in hydraulic fracturing, and horizontal drilling turned West Texas, Appalachia, and other shale regions into powerhouses that redrew the global energy map. Coal-based power generation dropped by 55% between 2007 and 2021, and it trended even lower in the first 11 months of last year. A growing fleet of gas-fired plants added competition to electricity markets by allowing utilities to burn the cheapest fossil fuel at any given time.
The shift forced dozens of coal-plant retirements in Pennsylvania, Ohio, and elsewhere, leaving many locations’ hulking boilers and towering smokestacks to demolition crews. With pressure growing to cut emissions, such shutdowns could increasingly be driven by policy decisions and corporate sustainability plans rather than the economics of coal-to-gas switching. Without coal plants to fire up, many utilities have no choice but to buy gas to ensure the lights stay on.
Manufacturers are facing increased energy costs due to the Ukraine war, making it more expensive to make bread, bottles, aluminum, cement, PVC pipe, toothbrushes, and pet food. When a winter storm froze Texas energy infrastructure in February 2021, lifting on-the-spot benchmark prices to an all-time high, the gas bill at Graphic Packaging Holding Co.’s mills shot to millions of dollars a day. Graphic’s mills contain miles of pipe that cannot be allowed to freeze, so the company is running second pipelines to its mills and paying premiums for firm-commitment supply deals to ensure it gets enough gas. Utilities are also seeking permission to claw back more 2022 gas costs from customers. Florida Power & Light plans to recover $2.1 billion starting in April, though it hopes lower gas prices this year will offset some of those rate hikes.
Southern Co., which runs power companies in Georgia, Alabama, and Mississippi, said it incurred $2.7 billion in unexpected fuel costs last year. Tom Fanning, chief executive of Southern Co., described the Ukraine war’s impact on gas markets as “overblown” and called for loosening restrictions on drilling projects.
In February, futures prices tumbled to $2 per million BTUs, leading drillers to drop rigs in regions such as the Haynesville shale beneath East Texas and northern Louisiana. This could tighten supplies next year when new LNG export terminals are slated to come online. Citigroup Inc. analysts expect futures contracts to dip as low as $1 and as high as $6 by the end of 2024. Costs have climbed out West, where coal plants have shut down, drought diminished hydropower output, and gas supplies shrunk after the 2021 pipeline explosion. A December cold spell in California pushed households to turn up the heat, and overcast skies cut solar generation.
Utilities with few alternatives to generate power bid up gas, setting the ultimate cost much higher than in the rest of the country. Pabco Building Products executives were shocked to learn that the January gas for its manufacturing facilities in Washington, Nevada, and California would range from $49 to $54 per million BTUs, compared with about $4 the year before. Instead of buying a month’s worth of gas in advance, Pabco started purchasing fuel on the spot market in February, exposing it to daily market gyrations. Prices in southern California dropped to single digits in February, but Pabco wasn’t finished paying for the surge. Mr. Bonnell said the firm received notice of an add-on charge from the utility that serves its paper mill in Los Angeles County, which was $400,000—16 times the typical monthly amount. Pabco plans to lock in some prices by buying futures contracts to help smooth costs during summer and winter when gas demand is highest.