On Thursday, natural gas prices gained pace after touching the highest level in nearly 14 years. This movement came as Russia’s invasion of Ukraine wreaked havoc on global energy markets.
Accordingly, Henry Hub prices rocketed to more than 9.00% at one point to a session high of $8.17 per million British thermal units. The contract eventually pared some of its gains, currently trading at 0.75% higher to $8.48 MMBtu.
This swift upward price action followed a nearly 30.00% gain in April. Subsequently, the surging demand for the US liquified natural gas mainly bolstered the movement.
Experts pointed to the changing weather patterns to the bullish sentiment as warmer temperatures usher in the air-conditioning season.
In line with this, the energy sector was the top-performing S&P 500 group, advancing more than 2.00%.
Analysts explained that the gain benefitted from the flurry of tighter market conditions. For instance, the European Union considered the sixth round of sanctions against Moscow, including the nation’s energy complex.
At the same time, the current inflationary pressures across the economy added to the upsides of the economy. As utility companies pass along their higher input costs, consumers’ electricity bills edged up.
Moreover, the United States is the largest producer of natural gas across the globe. However, the production is still gloomy. Consequently, gas in storage is 21.00% lower than in the same period last year.
Then, West Texas and Appalachia reported dampened production, with companies blaming a lack of adequate pipeline infrastructure.
Market participants also cited that the rally in coal prices fueled the surge in natural gas. Correspondingly, the current projection states that the energy industry could head even higher.
Why natural gas producers slow to boost output?
As Europe races to phase out the Kremlin energy, American natural-gas producers struggle to meet the mounting demand.
However, the companies stated that they would retire debt, buy back shares and pay dividends rather than ramp up output.
Researchers explained that manufacturers currently focus on capital discipline. Specifically, shale producers would raise free cash flow by 70.00% to a record high of $830.00 billion this year. Nevertheless, their capital spending would increase only by 11.00% to $286.00 billion.
Eventually, the cash from operations reinvested will only represent a 26.00% jump. This figure is significantly lower than the upturn of 70.00% in previous years.
Experts also added that labor shortages and late winter outages in areas such as North Dakota weigh on the drillers. Furthermore, the rising operating costs were another deterrent to a boost in supply.