Millions of sweaty Americans have been cranking their air conditioners to full blast, causing traders to bid up the price of electric companies’ lifeblood: natural gas.
The commodity, now up more than 8 percent this week, has been as hot as a city sidewalk. Though temperatures are expected to moderate soon, natural gas prices have the potential to climb higher if the weather gets steamy again or if the Gulf Coast — which accounts for about a quarter of U.S. natural gas production — falls in the path of a hurricane.
And if prices stay high, even folks who are trying to conserve energy could eventually see hikes in their monthly electric bill.
“If higher prices are sustained at wholesale level, over time, they’ll filter into the customer’s rates,” said Jim Owen, a spokesman for the Edison Electric Institute, a Washington-based trade group. He noted, though, that utility costs depend on state regulations and whether the company is already locked into a long-term natural gas contract.
Natural gas futures surged 14 percent to a near 6-month high on Monday, pulled back about 8 percent on Tuesday, then rose again Wednesday. They pulled back again a little on Thursday.
“The volatility has been spectacular,” said Fimat USA analyst John Kilduff. He added that while prices have been “a little overblown,” they could rise further if Tropical Storm Chris turns into a hurricane as expected and heads toward the Gulf Coast.
With temperatures topping 100 degrees for a few days in a row in some parts of the country and power demand nearing or reaching all-time highs, air conditioners in the United States have been straining national electricity grids. When electricity use rises above normal levels, natural gas is the main fuel that utility companies use to run the extra turbines to meet demand.
Natural gas rose 22.5 cents to settle at $7.799 per thousand cubic feet Wednesday on the New York Mercantile Exchange, after soaring as high as $8.545. They are still well below their all-time high above $14 reached in October.
The heat — on top of pinched refining capabilities along the Gulf Coast, violence in the Middle East and the threat of hurricanes — have buoyed other energy prices as well.
“The heat is generating all kinds of energy demand,” Kilduff said, explaining that in addition to natural gas, utilities use diesel fuel and other distillates to create power.
For several weeks following last year’s record-setting hurricane season, both oil and natural gas production were cut by more than half.
“Since hurricanes Katrina and Rita, American refineries have had trouble getting back to the levels of utilization before the storms,” Beutel said. “What we can’t afford to happen is have a storm take any refinery out, even temporarily.”
“We’re not reaching a stage right now that is likely to have us waiting in gasoline lines, but a couple well-placed hurricanes ... could cause spot outages,” he added.
Forecasters said Tropical Storm Chris could become the Atlantic’s first full-fledged hurricane of the year by Wednesday night or Thursday, as the storm brushed past islands in the eastern Caribbean and headed toward Puerto Rico.