Why are U.S. natural gas prices soaring?
U.S. natural gas prices are surging, with the benchmark futures contract rising to a 13-year high of $8.74 per million British thermal units, at a time when that fuel’s price tends to dip due to lack of demand in the spring. But analysts say a number of factors have combined to boost the cost of gas, which has risen about 90% since the beginning of March. Here is what is happening: WEATHER Simply put, it is hotter than normal in many parts of the United States. Power generators rely on gas to produce electricity, which is used by consumers and businesses to cool buildings. Weather in Houston, the biggest city in Texas, is expected to reach 100 degrees Fahrenheit (37.8 Celsius) over the weekend, or about 15 degrees F higher than normal for this time of year. Cooling demand in Northern California spiked earlier this week as well, and people responded by turning on air conditioners. Spot prices – the cost to buy gas in specific locations – spiked in several spots, including the Henry Hub benchmark in Louisiana as well as in California, Pennsylvania and Chicago. The gas market is getting caught up in the frenzy that has hit the oil, fuel and coal markets as countries scramble to make sure they have enough reliable energy in the wake of Russia’s invasion of Ukraine. Russia is the world’s biggest exporter of crude and fuel and is also the biggest exporter of natural gas. With fewer exports of Russian energy, countries in Europe and elsewhere are trying to secure supply. It is that factor that has boosted European benchmarks to several multiples of the U.S. price, as gas futures at the Dutch Title Transfer Facility (TTF) were at $33 on Thursday. The United States has helped by diverting cargoes of liquefied natural gas (LNG) to Europe, and many expect LNG demand to continue to surge as European nations shun Russia in the years to come. The United States has generally been isolated when it comes to the natural gas market. The nation produces roughly 97 billion cubic feet per day (bcfd) of natural gas, enough for domestic consumption and export of about 12 bcfd by way of LNG tankers. However, export demand is rising, and even though the United States cannot add capacity at a moment’s notice, expectations of a continued call on that demand are boosting the price of natural gas. The spring is the optimal moment for natural gas utilities to sock away gas in preparation for cold months which are two seasons away. But that hasn’t happened, in part due to rising overseas demand and worry about additional curtailment of global energy supply. As a result, there is less gas in storage right now than normal, with current storage at 1.567 trillion cubic feet, or about 16% below the five-year average for supply.
Indian petcoke producers raise domestic prices amid supply tightness: sources
Indian petcoke producers have increased their domestic prices for May amid tight supply and elevated global thermal coal prices due to countries struggling to replace Russian coal, market sources said May 4. India’s largest petcoke producer Reliance Industries Ltd., or RIL, increased its offer by Rupee 441/mt ($5.77/mt) from April, according to a note to traders seen by S&P Global Commodity Insights. RIL’s new petcoke offer for May is Rupee 22,257/mt. Chennai Petroleum Corporation Ltd., or CPCL, a subsidiary of state-run Indian Oil Corp., has revised its price for domestic petcoke to Rupee 22,070/mt for May, up Rupee 40/mt from April, according to a similar note to traders seen by S&P Global. RIL did not respond to queries, and Chennai Petroleum could not be reached for a comment. Mangalore Refinery and Petrochemicals Ltd., or MRPL, sharply increased its petcoke price by Rupee 4,140/mt to Rupee 20,640/mt for supply by road in May and to Rupee 20,340/mt for supply by railway rake. Bharat Petroleum Corporation Ltd., or BPCL, revised its petcoke price at Bina refinery up Rupee 5,505/mt to Rupee 23,156/mt and the price at its Kochi refinery by Rupee 5,583/mt to Rupee 21,259/mt, according to a note seen by S&P Global. MRPL could not be reached for a comment immediately, while BPCL confirmed the prices at its two refineries. A Nayara Energy company source said that the company has also raised its petcoke price by Rupee 434/mt to Rupee 22,262/mt for May. Traders said that domestic petcoke prices were still rising or were steady, despite a correction in international prices, as domestic producers had not increased the prices in March. “They [domestic petcoke producers] only revise prices on a monthly basis, and they could not increase the prices in March, so they feel they can keep prices at these levels due to current global conditions,” an India-based trader said. Traders pegged the price of India-delivered petcoke with 6.5% sulfur at $255-$260/mt CFR for the week ending May 6.
Businesses suffer as commercial LPG cylinder price touches Rs 2,450
The price of commercial LPG cylinders was raised by over Rs 100 at the start of this month, the latest escalation in fuel prices that have drained food businesses. Fast food centres across the city are feeling the heat. The price of a 19kg commercial cylinder now costs around Rs 2,450 in Kolkata. Based on purchase volume and timely payment, bulk procurers often get some discount from suppliers. Rajesh Chaurasia, who owns Iceberg, a popular fast-food centre in south Kolkata’s Golpark, needs one cylinder every day. He uses 17kg cylinders, which cost around Rs 1,800 each after the latest hike. His sales volume is around Rs 8,000 to 10,000 on a normal day. For Chaurasia, a hike of Rs 100 translates to an additional burden of Rs 3,000 per month. The amount would not have hurt him so much if it were an isolated jump. “From oil to vegetables to meat to packaging, the cost of everything has gone up. The margins are going down every day. It is becoming harder every day. I am able to survive because I don’t have to pay rent for my establishment,” said Chaurasia.
India turns to expensive foreign gas to ease its power crisis
Sweltering heat and ongoing blackouts are forcing India’s liquefied natural gas importers to top up with expensive shipments. Torrent Power Ltd. and GAIL India Ltd. bought LNG for May delivery in the last week, with the fuel set to be used to help power plants boost generation, according to traders with knowledge of the matter. The utilities paid about triple the normal spot rate for this time of year, as Russia’s invasion of Ukraine exacerbates a global supply crunch. The purchases are unusual for India’s cost-sensitive power generators, which tend to avoid buying LNG at such high rates. They illustrate how a domestic coal shortage is forcing the South Asian nation to look for alternative fuels no matter the price, further elevating international demand. While natural gas makes up just a small portion of India’s power mix, a scarcity of coal and hot weather has triggered scheduled blackouts, threatening to upend the economy. Gas was used to produce about 4% of the nation’s electricity in 2020, versus 71% for coal, according to BloombergNEF. GAIL is seeking at least one more shipment for late-May, the traders said, adding that several other Indian firms are inquiring about cargoes in the bilateral market. The heat wave also prompted neighboring Pakistan to purchase the nation’s most expensive shipment of the fuel ever to avoid blackouts during the Eid holiday this week. Cash-strapped Pakistan recently released a tender seeking to purchase another two cargoes for June.