Natural Gas Prices Up 40% - Low Temperatures and Geopolitical Uncertainties Among Key Factors
Natural gas prices rose to a two-year high on worries about a cold winter, geopolitical uncertainty and supply constraints.
Natural gas futures rose to $3.66 per million British thermal units (MMBtu) in the Asian session on Friday, hitting the highest since January 2023 and up 40% year-to-date .
This change shows that traders are worried about the increase in demand in the middle of a cold winter. Average temperatures in the Northern Hemisphere, including Europe, China and Japan, are expected to fall below average this year, leading to increased heating demands. On the supply side, intensified geopolitical tensions between Russia and the West could trigger further gas supply sanctions.
The US and Norway became the main suppliers of natural gas to Europe after Russian aggression against Ukraine in 2022. Prices rose to above $10 per million British thermal units in August 2022, but fell to a four-year low of 1, $53 in late February due to oversupply as the US increased production.
To stabilize prices, major US producers, including EQT and Coterra Energy, cut output in August. Natural gas prices recovered from $1.88 per unit at the end of August to $3.6 today, representing a 190% increase in four months.
Long-term demand prospects are on the rise. Natural gas is expected to be the main source of energy for technology firms and their massive data centers. According to S&P Global Commodity Insights, "global energy demand will grow by a third in the next ten years and "natural gas will play an important role as a baseload energy source."
Natural gas is expected to add 47 gigawatts per year between 2024 and 2035. Goldman Sachs predicts that gas will make up about 60% of the energy needed for AI operations, with the remainder to be covered by renewables.
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