Prices for Natural Gas Soar Amid Limited Supply

CALGARY - The rising price of oil products, especially gasoline, may grab most of the headlines, but another commodity - natural gas - is on an even wilder ride and expected to hit fresh highs this summer.

The war in Ukraine and resulting concerns about global energy security have driven up commodity prices world-wide. But where the price of oil is up about 85 per cent year-over-year, natural gas is up more than 200 per cent. As of Friday, the U.S. natural gas benchmark Henry Hub price was trading around $8.75 US per million British thermal units, or MMBtu. It surged to a 14-year high of more than $9 earlier in the week, from less than $3 at this time last year.

"It's like if oil went to $200 (per barrel), but it's not getting the same kind of attention," said Dulles Wang, a Wood Mackenzie analyst based in Calgary. "And I think there's probably still more upside potential for natural gas prices."

Driving the growth in prices are surging liquefied natural gas (LNG) exports from the U.S. Gulf Coast, aimed at helping to meet global demand for energy, along with low North American storage levels.

Part of the reason for the low inventory levels, said Robert Fitzmartyn, managing director and head of energy research at Stifel FirstEnergy in Calgary, is increased demand as regions such as Alberta phase out coal-fired power and replace it with natural gas. And the industry, which has gone through more than a decade of depressed prices prior to the current commodities boom and had to lay off many workers, is having a hard time keeping up. "There's limited labour availability to satiate elevated demand, so the price is going even higher," Fitzmartyn said.

Natural gas prices are also heavily influenced by weather and the demand for heating and air conditioning. That means extreme heat this summer, as has been seen in North America in recent years, could spike prices higher, even above the $10 US mark.

While both Fitzmartyn and Wang are bullish on the outlook for natural gas, Wang said he expects prices will eventually come down as drillers slowly ramp up production capability to meet demand.
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