The pandemic brought many supply chains to a screeching halt and then, as reopenings began the supply chain needed to be restarted. This back and forth has caused prices to jump. The natural gas industry is experiencing the effects of these supply chain issues. Prices for natural gas continue to surge. Why exactly is this happening and what does this mean for the price of power going forward? Let’s take a look at the current situation and discuss what you can do to reduce the effect these price surges have on your company.
The Current Situation
The rise in natural gas prices comes down to high demand and lack of supply. Prior to the start of the pandemic, investors were putting less money into natural gas due to the energy transition. This lack of investment created tight supplies that did not align with consumer demand. Not only was there a tight supply, but there were also unusually warm summer months that created an increase in energy usage. Together, these factors have led to the price increases we are seeing, but the question now is how long will these high prices persist.
Prices in the Future
In order for natural gas prices to fall, production needs to increase. It does not appear that is likely to happen until late 2022. This means that a cold winter may further exacerbate the supply crunch. Some regions may be more affected by this than others. For example, prices are expected to be especially high in New England and California in the months ahead. New England has a limited pipeline capacity and California is experiencing issues from an explosion of a pipeline in Arizona. Any further disruption to supply chains in the coming months is going to lead to increased prices. It will likely be another six to twelve months before we see these issues settle.
What can you do?
With increased prices, many companies are wanting to wait for price dips or lock in short-term deals in hopes that prices will fall in several months. While pricing curves for the upcoming winter and 2022 as a whole are high, the curves for 2023 through 2025 are still fairly low. This means that it could be time to take advantage of future pricing that is now available. It is unlikely that prices will return to those of 2020 and early 2021 within the next year. So, taking advantage of the future prices rather than waiting can help you avoid coming across the same issues next year.
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