Rising Natural Gas Prices Could Push Winter Heating Costs Higher

An era of depressed natural gas prices could be close to an end, meaning higher power generation costs for utilities and heating expenses for consumers this fall and winter.

A relatively mild U.S. winter early this year sent natural gas prices to their lowest level ($1.49 per million British thermal units, or BTUs in March) since at least 1997. That was more than 80% lower than late summer 2022, when supply concerns after Russia’s invasion of Ukraine months earlier roiled global markets.

But while natural gas prices remain at multiyear lows, they have risen gradually since this winter. That could persist, according to Jefferies, which projects that U.S. natural gas prices will average $2.90 per million BTUs this year, up from more than $2.45 earlier this week. Prices have surged from $1.80 since the end of May.

That’s because of rising concern that a gas transit agreement between Russia and Ukraine could expire at the end of the year. In that event, Europe has limited ability to replace gas flows cut off from Ukraine, Jefferies said, which could reverberate throughout global markets.

Demand for liquefied natural gas (LNG) exports and from utility plants for fuel could also drive broader demand growth this summer, according to a report from Energy Ventures Analysis, supporting price gains.

U.S. natural-gas storage inventories started the summer at higher-than-usual levels, the Energy Information Administration (EIA) said earlier this month. Still, flattish production and increased demand for electricity was expected to push prices higher, the EIA said.

Investors are eyeing the possibility of higher natural-gas prices as the outlook for oil prices has softened. Questions about demand in the second half, as well as the possibility of increased production by the Organization for Petroleum Exporting Countries (OPEC+), have kept pressure on oil prices worldwide.