U.S. consumers and utilities will be paying much higher prices for natural gas and energy this winter, as record American natural gas exports amid sluggish domestic production growth have raised prices for the fuel.
The global natural gas supply crunch has impacted U.S. prices, too. But it has also drawn record volumes of gas exports out of America this year, leaving lower volumes for the domestic market, on which major natural gas producers are sticking to capital discipline to reward shareholders and are not rushing to raise output.
As a result, utilities have started to warn customers they would be paying higher prices for heating and energy this winter.
A total of 48 percent of U.S. homes will pay 30 percent higher bills for heating this winter, as 48 percent is the share of U.S. households that use gas as the primary fuel for space heating, the Energy Information Administration (EIA) said at the end of last month.
The U.S. benchmark price Henry Hub has more than doubled since the beginning of 2021 due to relatively flat U.S. dry natural gas production and surging liquefied natural gas (LNG) exports amid high demand and record LNG prices in Asia.
This winter, retail natural gas prices in the United States are expected to rise on average to $12.93 per thousand cubic feet (Mcf) from $10.17/Mcf last winter. This would be the highest price since the 2005–06 winter average, as per EIA data.
The administration also projects higher energy bills for households using propane, heating oil, and electricity.
Evidence of higher consumer prices has started to show in recent days. For example, Eversource, an energy provider in New England, warned its customers in Connecticut last week that they would see their natural gas bills rise by 14 percent in November, and electricity bills would start to rise as of the beginning of next year.
Eversource's vice president of energy supply, James Daly, told The Wall Street Journal that the cost of natural gas had risen by 20 percent from this time last year, while wholesale electricity prices in New England were now 50 percent higher than a year ago.
More than the global rally in natural gas prices, which has had some impact on U.S. benchmark prices, the key reasons for higher natural gas and energy bills have been this year's record American exports amid flattish domestic gas production.
U.S. LNG exports jumped to record highs in the first half of 2021, on the back of rising spot demand in both the winter and summer months from Asia and Europe and lower U.S. benchmark gas prices than international prices.
In the third quarter of 2021, the top U.S. LNG exporter, Cheniere Energy, exported a record number of 141 cargoes, the company said in its Q3 earnings presentation.
While much high LNG prices in Asia compared to the U.S. benchmark continue to incentivize American exports, domestic natural gas production is not rising too much despite the high Henry Hub prices in recent months. Many shale gas producers prefer to reduce debts and reward investors.
"But really, we're staying away from growing. We're happy with where we are right now and just focusing on that free cash flow. So haven't been tempted and just want to see delivering and getting the balance sheet in pristine shape," Paul M. Rady, CEO and chairman at Antero Resources, said on the Q3 earnings call at the end of October.
Ahead of the coldest months, with recovering demand after the pandemic and the high export volumes, U.S. working natural gas stocks totaled 3,611 billion cubic feet (Bcf) for the week to October 29, per EIA data last week. This was 8 percent lower than the year-ago level and 3 percent lower than the five-year (2016–2020) average for the week.
The EIA warned American households last month: prepare to pay more for your heating and electricity this winter amid higher energy prices, including in the United States.
By Tsvetana Paraskova for Oilprice.com
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