Why Are Natural Gas Prices Rising?
Natural gas prices are reaching record highs, and are also showing unprecedented volatility. This is happening because: • The collapse of energy trading markets has made it harder to manage price risk through long-term contracts, forcing more buyers into volatile (and expensive) spot markets. • Natural gas in storage is dwindling rapidly. This is forcing local utilities to bid up prices in order to obtain enough gas to serve their customers. • Natural gas powers almost all new electricity generation, increasing demand that further competes for limited gas supply and pipeline capacity. • Overall demand for natural gas has grown faster than has new pipeline capacity needed to transport the gas to consumers. These factors are driving a dramatic increase in wholesale prices, which are beginning to be passed along in retail natural gas prices. Residential gas prices are likely to rise to all-time high levels in the coming months (see figure), exceeding those seen the winter of 2000-2001. In
