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US energy prices for home heating fuels have surged as a polar vortex has borne down on the country, reviving volatility in markets left dormant after years of mild winters.
Natural gas prices have risen by 4 per cent in the past week and 14 per cent in the past month, with benchmark Henry Hub trading at $3.66 per million British thermal units on Thursday. Contracts surged as high as $4.20/mn btu on Monday.
Heating oil futures have gained 5 per cent in a week, with benchmark New York Harbor contracts trading at about $2.35 per gallon on Thursday.
The onset of winter is historically a time in commodity markets when prices for heating fuels rise. But the northern US may be facing its coldest January in more than a decade after years of warmer winter temperatures, catching some traders in the market off guard. Last year’s winter in the US was the warmest on record, according to the National Centers for Environmental Information.
“The market has been rather complacent as US production was surging and inventories were above normal,” said Phil Flynn, an analyst at Price Futures Group. “But at the same time, the market may have to face a winter challenge that it has not seen in a while.”
About 47 per cent of US households heat their homes with gas, while 40 per cent use electricity, according to the US Census. Heating oil is still used in some parts of the Northeast.
The jump in fuel prices comes as eastern and central parts of the country brace for an “Arctic outbreak” that is set to bring what the National Weather Service has warned will probably be “the coldest air of the season to date and dangerous wind chills”.
Temperatures could drop below zero as far south as the Gulf Coast and Florida, the agency warned, potentially damaging citrus crops.
Flynn warned the price impact could be substantial if forecasts prove accurate, noting Arctic cold over Texas shale basins could disrupt supplies just as calm weather curtailed wind generation. That could trigger a rise in natural gas prices of “over a dollar or more”, he said.
The US Energy Information Administration expects household spending on winter heating to remain relatively unchanged from last year with the exception of the Midwest, which is expected to see an 11 per cent increase in gas prices this year and a 6 per cent increase in electricity prices. The Northeast is also expected to see electricity prices increase 5 per cent.
The higher prices come as US households have struggled to afford their utility bills.
A recent analysis of census data from Lending Tree found that more than one-third of US households had cut back or skipped necessary expenses such as food and medicine in the past year to pay for utilities. Nearly a quarter of households were unable to pay part or all of their bill in the period.
“We’re not just talking dollars and cents in arbitrage potential here. We’re talking serious economic and human harms,” said Akshat Kasliwal, a power analyst at PA Consulting.
“It behoves all of us collectively to take a step back and not just look at the next week, next two weeks, but think more broadly in terms of how do we maintain an affordable and reliable system?”
The country’s ageing electricity grid faces mounting security risks from extreme weather and a historic growth in power demand from artificial intelligence and the energy transition.
Winter storms have been behind the largest disruptions to gas supply in recent years. The Energy Information Administration found the deadly winter storms Uri in 2021 and Elliot in 2022 drove declines in monthly average natural gas production of 3-7 bn cubic feet per day.
“For the most part, the market’s pretty well prepared for this cold snap,” said Scott Shelton, an energy analyst at TP ICAP. “I think the next one will be a bit more precarious.”
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