As a rare April Nor’easter makes its way toward the Northeastern U.S. this week, residents will surely be turning the heat on. That means high natural gas futures. Coming on top of a 16% jump last week, Monday’s 9% jump put natural gas futures at a level not seen since 2008. In 2022, they’re up 113%. In a game of supply and demand, inventories have been below average and so have temperatures, leading to expensive natural gas.
Usually in such a situation, power plants would respond by adding more coal to the energy mix in place of natural gas, but coal prices are high too, as inventories are low and global production is in decline. Leaders of the G7 countries affirmed last week that they will “expedite our plan to reduce reliance on Russia for our energy, which include phasing out and banning Russian coal imports.”
“That traditional relief valve of shifting to coal is less likely,” said Rob Thummel, senior portfolio manager at TortoiseEcofin, told CNN.
Natural gas inventories are about 17% lower than the average of the last five years in the U.S. and are sensitive to immediate issues such as the fewer Russian imports and below average temperatures. That also means natural gas futures can drop just as quickly if the weather warms up.
“They are not going to stay this high forever,” Thummel said. “We think $7 is high? Europe and Asia are paying $35 for the same commodity.”
Natural gas prices have been high across Europe since last summer, and sanctions against Russia for its invasion of Ukraine have raised them even higher.
In the long term, the high prices for natural gas and coal may push countries further toward renewable forms of energy, but in the mean time places like China have increased production to record levels to take advantage of the prices.