The energy market is showing that supply and demand are still in effect. Right now, the highlight is the price of natural gas, used in homes but also by many utilities to make electricity.
The price of natural gas is 70% above recent lows; in the second week of September, it was a new 8-year high. Several reasons create the higher prices: 1) Natural gas is a go-to for generating extra power in the summer. 2) The US exports liquefied natural gas. 3) Natgas producers are not investing in new production. The result: “There’s significant upside risk this winter,” says one energy expert.
Utilities switch (as their facilities may allow) between coal, gas, and other fuels for the lowest cost whenever possible.
The winner is an unlikely one: Coal. “…the combination of seasonal demand patterns, recovering power demand and increasing electricity and gas prices will drive an increase in US coal consumption…” (Source)
“As a result of the higher expected natural gas prices, the forecast share of electricity generation from coal rises from 20% in 2020 to about 24% in both 2021 and 2022. … We expect demand for coal from the electric power sector to increase by 100 MMst [short tons] in 2021 as a result of high natural gas prices…” (Source)
The laws of supply and demand are open for business. As the Wall Street Journal said recently: “Today’s high energy prices could be a preview of coming attractions—a real horror movie if this winter is cold.”
Feature image is a gas plant of ConocoPhillips.