The 5 countries that produce the most natural gas 1:55
New York (CNN Business) --
Natural gas prices in the US have soared to levels not seen since 2008, a spike that threatens to outweigh the benefits of falling gas station prices.
Natural gas futures rose 7% on Tuesday to settle at $9.33 per million British thermal units (BTUs), the highest settlement price since Aug. 1, 2008.
Although natural gas futures cooled a bit on Wednesday, they are still up 70% just since the end of June.
And natural gas is up a staggering 525% since closing at $1.48 in June 2020, when Covid-19 shut down much of the US economy.
The summer spike is due in part to high demand, as scorching temperatures across much of the country force Americans to turn up the air conditioning.
That, in turn, has undermined relatively low inventory levels.
"We've had this permanent heat wave cooking America," said Robert Yawger, vice president of energy futures at Mizuho Securities.
As temperatures drop this fall and winter, the increase in natural gas is a surprise sign for families.
Natural gas is not only a leading fuel source for the electric grid, but it is the most popular way to heat homes in the United States.
"Depending on the weather, it could be a challenging winter," said Rob Thummel, senior portfolio manager at Tortoise Capital Advisors.
"But not as challenging as in Europe. They risk running out of natural gas. We don't."
Natural gas prices in Europe are seven times higher
Russia shuts off part of gas supply to Germany 1:08
Europe's natural gas crisis is being driven by its reliance on energy from Russia, which has drastically reduced natural gas flows to Europe in response to Western sanctions.
The European Union has been forced to draw up plans to ration natural gas, a drastic step that will harm families and businesses.
Natural gas prices have soared so high in Europe that they threaten to send the continent's economy into recession.
For context, natural gas prices in Europe are trading at levels equivalent to around $70 per million BTU, according to Andy Lipow, president of Lipow Oil Associates.
That's about seven times higher than prices in the United States.
But that's little comfort to Americans struggling with high prices at supermarkets, clothing stores and restaurants.
Despite natural gas prices rising, oil prices have plummeted, which has helped push gasoline prices down considerably.
The national average for regular gasoline has dropped 64 days in a row, according to the American Automobile Association (AAA).
Rebound in exports to Europe
Analysts say the natural gas crisis in Europe is contributing to higher natural gas prices in the United States, although it is not the main factor.
"Higher global prices are trickling down to the US. Natural gas has become a global commodity with the emergence of LNG," Thummel said.
The United States has increased its exports of liquefied natural gas (LNG) to Europe in an effort to mitigate the impact of the loss of Russian gas.
"Every replacement molecule that we can find, we will ship to the eurozone," Yawger said.
US natural gas production is lagging
But the biggest problem for US natural gas is the fact that inventory levels are below historical averages, leaving the market less protected and driving up prices.
"We started this year at very low levels and never really caught up," Yawger said.
Supply has been unable to keep pace with strong demand for gas.
Thummel pointed to how US oil and gas producers are under pressure from Wall Street to spend less on expensive drilling projects and more on dividends and shareholder buybacks.
"We need more natural gas production in the US. Production levels are too low," Thummel said.
The good news is that higher prices should eventually incentivize more production.
And investors aren't betting that today's high prices will continue.
The futures market indicates that natural gas prices should be almost 50% lower in the same period next year.
On the other hand, very few people thought a year ago that natural gas prices would be at 2008 levels. And yet here we are.
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