America’s next hot import might be record energy prices

Ethan Paterno, energy markets expert at PA Consulting, comments on high US energy prices.

Click here to read the full Wall Street Journal article

The article notes that today’s high energy prices could be a preview of coming attractions—a real horror movie if this winter is cold.

Benchmark U.S. natural-gas prices edged above $5 per million British thermal units this month, near their highest since 2014, but they are fairly tame compared with levels in Europe and Asia. The inventory situation seems less dire at home too as underground natural-gas storage grows. The problem is that seasonal stockpiling isn’t happening quickly enough, with inventories 7.1% below their five-year average and less margin for error.

It isn’t as though the U.S. hasn’t seen natural-gas prices this high before. They occasionally touched double digits before the shale boom, but that was during the winter, when every molecule was employed to keep the lights and heat on at home. Today the rest of the world might be in dire need of that gas, as well as America’s coal, just when a crunch arrives.

The U.S. is shipping out an order of magnitude more than it did even a few years ago. During the first half of the year, the U.S. has exported roughly 10% of its natural-gas production and continues to export at near full capacity. Before opening its first export terminal in the Lower 48 states in 2016, the U.S. exported less than 1% of its natural gas.

Coal exports are running high too. The U.S. exported 52.5% more coal in the second quarter than it did a year earlier, according to S&P Global Market Intelligence.

Europe and Asia are in worse shape, with Europe’s natural-gas inventories at a record low for September. Both regions are seeing benchmark prices soaring above $20 per MMBtu as they compete to attract liquefied natural gas cargoes.

Back at home, meanwhile, there is less coal for utilities to fall back on if the winter becomes harsh.

Ethan said: “We’ve heard of instances in the middle of the U.S. where power plants just can’t get the coal."

The Energy Information Administration expects U.S. power plant coal inventories to fall to 61.3 million short tons at the end of the fourth quarter, less than half last year’s levels. That is the lowest figure since at least 1997, according to Argus Media.

Thermal coal prices have been running hot alongside natural gas, partly because of strong export demand. In particular, China has been importing a lot more coal from the U.S. after banning the commodity’s import from Australia over a diplomatic spat. Newcastle Coal futures, among the more liquid benchmarks for thermal coal, are priced at $176 per ton, more than three times where they were a year earlier. High fuel prices are spilling into the U.S. electricity market. Analysis from EBW Analytics Group shows that electricity futures prices in all major power markets have surged over the past month.

In the New England power market, forward power prices for January-February 2022 are already trading at nearly $150 per megawatt-hour, a significant jump from the $40 to 50 per MWh average seen during the winter in recent years, according to Ethan.