Why natural gas prices have surged to some of their highest levels in years

Natural gas prices have climbedto some of their highest levels in years, with the increases expected to rippleinto people's gas bills as winterfast approaches.

A marriage of factors in North America and Europe from summer storms to an overseas supply crunch have contributed to sharp risein the price of the fossil fuel.

Martin King, senior analyst at RBN Energy, said the Alberta spot price fornatural gas was around $4.80 a gigajouleon Thursday morning. With the exception of a Februaryprice spikeamid anasty North American cold snap, it's some of the highest prices he's seen in years.

"It's pretty astounding," King said.

"We're seeing seven-year highs for natural gas both in the U.S. and Canada and, on the international front, we're seeing pretty much close to all-time highs in many markets worldwide."

While those prices will help natural gas producers, it'll have consumers facing higher gas bills at a time when they're already paying moreforhousing,transportationand food.

"We'll see how the spring and summer next year shape up," King said."Butin the very short term, going into the winter, we're all going to be facing higher natural gas bills."

It's part of an international story.

In the U.S. futures market, thenatural gas contractfor October climbed to over $5 US per one million British thermal units a level not seensince February, 2014.

Reuters reported Thursday that U.S. natural gas futures slipped as storage levels improved, but one analyst told the news service it wasn't "enough to put a ceiling on the recent rise in prices."

Meanwhile, the price of natural gas in Europe has risen fivefold since last year, pushing power prices across the continent to their highest in over a decade.

In North America, views range on how high prices might still climb.

King said itseems like the pricecould potentially go a "little bit higher" into October, adding much depends on how cold things get at the start ofthe winter heating season.

Higher commodity prices prompted Saskatchewan's natural gas distribution company this week toapplyfor an increase in the price of natural gas in the province.

SaskEnergy said the market price for natural gas has doubled since the Crowndecreasedits prices back in 2019.

It pointed to increased natural gas demand for power generation coupled with higher liquefied natural gas (LNG) exports are contributing to increased commodity prices.

In Ontario,EnbridgeGas has applied to theregulator for an increase ranging from six to eight per cent in the rates paid by its 3.8 million customers. On an annualized basis, that represents about$60 to $80 more for the average residentialcustomer, the company said. If approved, it would take effect on Oct. 1.

Spokesperson Andrea Stasssaid that through the pandemic, in 2020 and early in 2021, demand for natural gas declinedand pricesdipped to some of their lowest points "in many years." The company decreased rates in July by two per cent, she said.

"We're now at a point where our economy is recovering and demand is increasing," Stass added.

Why

There are severalfactors running through the natural gas market these days impacting prices globally.

In Europe, stockpiles of natural gas are low, the result of a witch's brew of issues that includean unusually cold winter and maintenance work at Norwegian facilities. Power prices on the continentare"skyrocketing."

With gas prices soaring overseas, the United States is shipping as much liquefied natural gas as it possibly can from North America, said Jeremy McCrea, director of Raymond James Energy Research in Calgary.

"It's actually draining our gas inventories quicker than ... I think a lot of guys have expected," he said.

He also noted that the slow down that's occurred in oil well drilling in North America has had an impact becausemany of those wells also produced associatednatural gas.

"If you look at the one-year outlook for gas prices, you're looking at $4 to $4.25 prices here," McCrea said,referring to the Alberta market, "which are some of the highest levels that we've seen since 2014."

Hurricane Ida also had an impact on U.S. gas production.

Higher natural gas prices should helpliftprovincial revenues in Alberta. It'salso expected to helpCanadian gas producers thatslashed operating costs amid much lower prices.

"They are very slowly and very cautiously increasing their capital spending programs," said RBN Energy's King.

"By nature, it's a very cyclical industry. And just as soon as we've seen these strong gas prices, a warm winter could wipe out all the gains that we've seen very, very quickly."

Darren Gee, president of Calgary-based Peyto Exploration & Development, saidcurrent pricing is good for the company,generatingmore cash flow from its natural gasproduction.

"We'd love to say that this [pricing]translates into then more drilling and more investment in Alberta and more jobs for Albertans," Gee said Tuesday.

"But the challenging part is that we still ... have limited amount of egress in western Canada. We can only get so much gas out to market, whether that's to the U.S. market or to the global market."

He said it's also been difficult for the industry to get workers.