After physical delivery gas prices hit $600 per million British thermal units in Oklahoma this past weekend, the commodity is now trading at $500 per mmBtu at two Midcontinent hubs, Bloomberg reports, with prices at a third hub at $300 per mmBtu.
Normally, gas trades at about $3 per mmBtu, but the wave of Arctic cold weather sweeping across the middle of the United States has boosted demand for energy massively and has already led to blackouts in some parts of the country, notably in Texas.
This, in turn, has led to a spike in oil prices as blackouts interfere with oil and gas production and pipeline operations in the country's single biggest oil-producing state.
"Some producers, especially in the Permian Basin and Panhandle, are experiencing unprecedented freezing conditions which caused concerns for employee safety and affected production," said the Texas Railroad Commission.
Meanwhile, operators of more than 30 pipelines have declared force majeure on deliveries or have restricted the amount of fuel that the pipelines can transport, Bloomberg reported, quoting East Daley Capital.
Supplies to gas-fired power plants have been disrupted as well because of the production outages, which has added to weather-caused malfunctioning at several other power plants as well, the Financial Times reported on Monday, aggravating an already difficult situation.
"These outages will continue until there's sufficient generation able to be brought back online to meet the demand on the system," Dan Woodfin, senior director of operations at ERCOT, said on Monday, as quoted by the FT. "At this time we anticipate that we'll need to continue these controlled outages at some level for the rest of today and at least the first part of tomorrow, perhaps all day tomorrow."
Data from BloombergNEF suggests natural gas production in the U.S. has fallen by 10 billion cu ft daily in the past week.
These latest price developments are bad news for everyone except small and limber natural gas producers who have had to idle wells before because of the low oil prices. Now, Bloomberg reported separately, they are uncapping wells and putting them back online, for however long the price rally lasts.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More