Natural Gas Nears 2-Year Highs, Inflation Fears Mount As Utility Costs Climb

U.S. natural gas prices jumped Thursday, with the Henry Hub benchmark – as broadly tracked by the U.S. Natural Gas Fund LLP UNG – climbing 6.5% to $3.59 per million British units, eyeing the highest close since January 2023.

Since the start of the week prices are up 9.5%, cementing the likelihood of witnessing the eighth week of gains in the last nine.

The recent rally came on the back of robust withdrawals from storage, robust domestic and global demand, and ongoing geopolitical uncertainties in Europe.

Rising natural gas prices spell trouble for inflation and the economy, potentially leading to higher utility bills for U.S. consumers in the near future.

For investors, rising natural gas prices add to the concerns sparked by a more hawkish-than-expected Federal Reserve meeting this week, in which policymakers raised inflation forecasts for next year and signaled a slower pace of rate cuts.

EIA Data Confirms Third Consecutive Triple-Digit Storage Drop

The U.S. Energy Information Administration reported a 125 billion cubic feet withdrawal from natural gas storage for the week ending Dec. 13, in line with market expectations of a 126 Bcf decline. This marks the third straight week of triple-digit draws and the fifth consecutive week of inventory reductions.

The most significant declines in storage were recorded in colder regions of the Midwest, down by 48 Bcf , and East, down 34 Bcf.

As of Dec. 13, total U.S. natural gas stockpiles stood at 3,622 Bcf—0.6% higher than the same period last year and 3.8% above the five-year average.

Domestic Demand Soars, Breaking Records in 2024

The EIA's Natural Gas Annual report released Wednesday forecasted record-breaking domestic consumption in 2024, largely driven by a surge in power sector demand.

The report revealed that AI data centers are an important source of increasing natural gas consumption.

• Electric Power Sector: Natural gas use averaged 35.4 Bcf/d in 2023, a 6.7% increase (2.2 Bcf/d) from the previous year, making up 40% of total U.S. consumption.
• Residential Sector: Consumption hit a five-year low, averaging 12.4 Bcf/d, an 8.9% drop from 2022.
• Commercial Sector: Usage decreased by 4.8%, or 0.5 Bcf/d.

Geopolitical Risks Drive LNG Demand

Global liquefied natural gas markets are also influencing U.S. natural gas prices.

Uncertainty surrounding Europe’s access to Russian gas via Ukraine has prompted EU countries to seek alternative suppliers, boosting demand for U.S. LNG.

This trend is further fueled by President-elect Donald Trump‘s promises to expand LNG export permits. U.S. firms are already favoring lucrative LNG exports over cheaper domestic sales, amplifying the focus on global markets despite abundant local supply.

"If weather remains mild this winter as in the past two winters, we expect a relatively stable global supply-demand balance with prices similar to the previous two winters," the EIA said in a recent report.

The agency cautioned that colder-than-expected winters in Europe or Asia could tighten supply-demand balances, leading to price spikes.

Market Reaction: Natural Gas Stocks On The Move

Natural gas stocks outperformed within the broader energy sector on Thursday.

Major gainers included Kinder Morgan Inc. KMI, up 2.8%, The Williams Company Inc. WMB, up 1.6% and EQT Corp. EQT, up 0.9%:

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Image created using artificial intelligence via Midjourney.