Natural gas prices have surged to their highest levels in nearly two years, driven by fears of a cold winter in the northern hemisphere, alongside geopolitical tensions and supply constraints.
Benchmark natural gas futures rose to $3.66 per million British thermal units (MMBtu) in Friday’s Asian session, marking the highest price since January 2023, and reflecting a 40% increase year-to-date.
Concerns about a colder-than-usual winter, particularly in Europe, China, and Japan, are fueling expectations of higher heating demand. According to EBW Analytics Group, the rise in prices is largely attributed to forecasts of cold weather in mid-January, with daily heating demand expected to spike by 18 billion cubic feet in the coming days.
On the supply side, ongoing geopolitical tensions, particularly between Russia and the West, have raised concerns about potential further sanctions on Russian gas exports. Additionally, the U.S. Energy Information Administration (EIA) reported a decline in working natural gas inventory, with a withdrawal of 125 billion cubic feet for the week ending December 13.
In the wake of Russia’s invasion of Ukraine, the U.S. and Norway have become key natural gas suppliers to Europe, and prices previously surged to over $10 MMBtu in August 2022. However, they fell to a four-year low of $1.53 MMBtu in late February due to oversupply following increased U.S. production. In response, major U.S. producers, including EQT and Coterra Energy, scaled back output in August to stabilize prices.
The price rebound from $1.88 MMBtu in late August to $3.66 MMBtu now represents a 190% increase in just four months. Production disruptions from Hurricane Rafael in the Gulf of Mexico in November also contributed to the price surge. In the near term, natural gas prices are expected to remain volatile, with political factors, including the incoming Trump presidency, potentially influencing supply and demand dynamics.
