Stock - LNG
Gas has rallied more than 150% this year in the US and more than tripled in Europe. Image Credit: Shutterstock

Texas: US natural gas prices rose above $10 per million British thermal units for the first time since 2008, extending a scorching rally driven by persistent concern that global stockpiles of the heating and power-plant fuel aren’t enough to meet winter demand.

Prices for the heating and power-generation fuel have surged all over the world since last year amid a supply crunch that has been worsened by Russia’s attack on Ukraine. That has left countries scrambling to secure scarce cargoes of liquefied natural gas.

Supplies are a concern particularly in Europe, where an unusually hot summer has been met with reduced flows from Russia. The region has become increasingly dependent on gas shipments from exporters including the US to shrink the shortfall.

But the US faces concerns of its own. The country’s gas inventories are 13 per cent down from levels typically seen this time of the year as blazing summer heat has boosted demand for electricity, further tightening supplies ahead of winter. Production from shale fields has been growing only modestly. Meanwhile, exports, which have been constrained since an explosion at a key terminal in Texas in early June, are expected to rebound to full capacity in October as the facility restarts.

Shortage fears were heightened further on Monday after Russia said the key Nord Stream pipeline from Russia to Germany will stop for three days of maintenance on August 31, stoking speculation that the conduit won’t restart as planned after the work. The news sent European gas futures skyrocketing more than 20 per cent to a record and also buoyed US futures. Gas has rallied more than 150 per cent this year in the US and more than tripled in Europe.

“Explosive upside should not be ruled out,” consultant EBW AnalyticsGroup said Tuesday in a note to clients, citing the outlook for higher temperatures in the US and spiking prices in Europe.

Cooling demand has been persistently above normal this summer. In past years, power plants would switch to burning coal when gas prices soared, but that’s happening less and less because of climate concerns. That means a traditional ceiling on demand that used to prevent US gas prices from skyrocketing has been largely removed.