Natural gas prices in the U.S. hit a fresh 13-year high on growing concern that stockpiles of the power-plant fuel will fall short of demand this summer.

The current rally is unusual in that past U.S. price spikes tended to be triggered by bone-chilling weather that boosted consumption, or by Gulf of Mexico hurricanes that slashed supplies. Normally at this time of the year, North American weather is so benign that utilities, manufacturers and brokers have no trouble stowing ample volumes of gas in storage caverns for use later in the year.

But the combination of the post-pandemic consumption bump, soaring overseas demand and a muted output response from domestic shale drillers is driving price escalation. U.S. gas inventories are 17 per cent below normal, the biggest deficit since 2019 for this time of year. While the shortfall isn’t huge, it’s coming against a backdrop of record exports and stalled gas production growth. That’s fueling expectations of more price spikes later in the year. 

“I would be shocked if you got a cold start to winter and natural gas didn’t break US$10,” Ron Ozer, founder and chief investment officer of Miami-based hedge fund Statar Capital LLC, said in an interview. Statar had US$2.8 billion in assets under management as of April 30.

For most of his career, a 30-cent move in gas prices could drive a significant uptick in power generators switching to cheaper coal, according to Ozer, a former Citadel trader. But because many coal plants have shut due to environmental and economic pressures, power demand for gas is proving to be more inelastic, he said.

“We are in the lowest-risk weather time of the year, so if this is what it looks like in May, what does it look like in the peaks of summer? What is it going to look like in that cold start of winter? That would create some extreme price moves,” Ozer said. 

Pipeline operator Williams Cos. is seeing that inelasticity firsthand. Chief Executive Officer Alan Armstrong said on a conference call Tuesday that domestic demand for gas from the power and industrial sectors in the U.S. has continued to grow despite much higher prices. 

Prices

• U.S. gas for June delivery rose 6.4 per cent to settle at US$7.954 per million British thermal units on the New York Mercantile Exchange
• Settlement price is highest since Aug. 2008; prices earlier rose about US$8 intraday