Natural-Gas Prices Soar as U.S. Braces for Arctic Blast
A big concern is Texas, where cold temperatures threaten to ice oil-and-gas fields and wreak havoc on the power grid
Natural-gas prices have jumped 63% this week in response to forecasts calling for some of the coldest, snowiest weather in years to freeze the country from the West Texas desert to the Great Lakes.
The forecasts have stoked fears of a repeat of the deadly winter storm that froze Texas in 2021 and left millions of people without electricity for days. Energy producers and utilities are preparing for the worst. The Energy Department late Thursday ordered grid operators to be prepared to take extraordinary steps to tap in to backup power generation.
Subzero temperatures are in store for Minneapolis, Chicago and Detroit starting Friday. New York and Washington, D.C., are expecting to be buried in snow by the end of the weekend.
The big concern in energy markets is for Texas and other parts of the southern U.S., where uncommonly cold temperatures threaten to ice some of America’s most prolific oil-and-gas fields and wreak havoc on the power grid. Prices for electricity this weekend are already surging in Texas.
The biggest gains in natural-gas prices have been for near-term deliveries. Futures for February delivery of the heating and power-generation fuel had their biggest three-day percentage gain on record. Futures settled Thursday at $5.045 per million British thermal units, up from $3.103 at the end of last week.
The arctic blast has the potential to be felt in energy markets for a long time. Traders are anticipating a big chunk of U.S. production will become blocked in frozen wells when heating demand is highest, necessitating a huge drawdown of domestic stockpiles to keep furnaces and boilers running.
They are betting the incoming weather will be cold and persistent enough to change the outlook for domestic supply, which a week ago appeared headed for another glut that depressed prices and pinched producers. In just three trading sessions this week, natural-gas futures prices for delivery into next year have been lifted out of the danger zone for drillers, who notched daily production records in December.
The frigid forecasts caught many traders wrong-footed. A snowy start to the heating season lifted gas prices to their highest level since 2022, when fuel markets surged following Russia’s full-scale invasion of Ukraine. Unusually warm weather then sent them tumbling down. Traders piled into bets that prices would fall further.
“We were going into the weekend thinking we’d have a marginally warmer-than-normal January, because the first two weeks of January were the fifth-warmest of all time for the U.S.,” said Matt Rogers, a meteorologist and president of Commodity Weather Group, which advises traders. “The sentiment was that winter was winding down.”
In heating-degree days—a population-weighted measure of temperatures below 65 degrees Fahrenheit that traders use to gauge demand—forecasts are calling for the two weeks that end Feb. 4 to be the coldest since 1985, Rogers said. Longer-term forecasts suggest that frigid temperatures will linger deep into February.
Traders who bet that winter was over and that gas prices would fall have had to buy futures this week to cancel out those short positions, adding to this week’s price gains.
More-expensive gas will boost bills for the roughly 61 million U.S. homes that are warmed with natural gas, as well as the 57 million using electricity, much of which is generated by burning gas.
In Texas, where many rely on electricity for heating, the grid faces its most-serious challenge since the 2021 disaster, in which more than 200 people died. Although freezing temperatures are forecast for much of the state, conditions aren’t expected to be as dire as they were in 2021, during the storm named Uri.
“This storm is not a Uri,” said Kimberly Allen Dang, chief executive of the pipeline operator Kinder Morgan, which reaped a windfall profit of more than $1 billion shuttling around gas during the 2021 storm. “It’s much shorter in duration, and it’s not going to be as significant,” Dang told investors Wednesday.
The Electric Reliability Council of Texas, the grid operator for most of the state, said it expects potentially lower reserves, but that there should be enough generation to meet demand. The operator, also known as Ercot, issued a weather watch for Saturday through Tuesday.
Corey Amthor, president of Enchanted Rock, which provides natural-gas backup power for customers such as grocers, data centers and water plants, said the biggest risk for Texas will come Monday morning, when demand is expected to rise to about 82,000 megawatts.
Large solar and battery-storage projects have been installed in Texas in recent years and have helped the grid during heat waves. But solar won’t be available during the evening and early-morning hours, when winter demand rises. Batteries, most of which can deliver power for about two hours, should have time to recharge during the day but also will need to recharge overnight, when people will be cranking their heaters.
That dynamic has pushed wholesale power prices, often around $20 a megawatt-hour, to about $600 a megawatt-hour for the overnight hours this weekend, Amthor said.
After the 2021 disaster, Texas required power producers to winterize their plants better. Even if they are able to function properly in the coming cold, forecasts are calling for a lot of ice, which could bring down neighborhood power lines and cause outages.
Ice is an especially big worry in West Texas, where Permian Basin producers are bracing for droves of oil-and-gas wells to freeze shut. Such freeze-offs happen every year, though usually in colder states, such as North Dakota, Ohio and Pennsylvania.
On Thursday, about 1.6 billion cubic feet of U.S. gas production was already blocked in those states and others, said Randall Collum Jr., senior vice president for commodity trading data and analytics at Wood Mackenzie.
Collum, who earlier in his career contended with freeze-offs in Wyoming gas fields, said wells in the Northeast tend to be the best weatherproofed and flow until temperatures are below about 15 degrees for more than 12 hours. In other regions, temperatures below 20 degrees can cause freeze-offs.
He has forecast that as much as 20.8 billion cubic feet of daily output could be iced over in the coming days. That would be a record, and about 18% of total lower-48 production.
“It really is a big chunk,” he said. “This one event could be more than we saw each of the last two years.”