Higher Natural Gas Prices Could Put More Pressure on the Economy
An unexpected wave of bitter cold has hit much of the United States and Canada. The cold could continue throughout the winter, but you may have more reason to feel bitter. Natural gas prices are going through the roof; they hit record highs in December. Higher natural gas prices will add pressure to the economy.
Yes, high natural gas prices are great for producers—and for the coal industry—but they are not good for average Americans and the overall economy. For starters, natural gas will increase the price of gasoline. Petrochemical companies use natural gas as feedstock for many of their products. The companies will pay more, passing the cost increases onto the consumers.
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Natural gas prices have risen by more than $3.70 per million BTU (MMBTU) in recent weeks, and have also boosted the stock prices of the largest natural gas producers, which had previously lost investor confidence. The price of natural gas was about $2.00/MMBTU.
The price of natural gas has almost doubled. There’s no telling how high it could go, making everything more expensive and tightening the economy.
The intensity of the cold snap in the U.S. has added the surprise factor. It literally ate its way through inventories, contracting the market faster and tighter than anyone could have expected. This was especially the case as the U.S. emerged from record levels of natural gas in storage at the end of the last winter season. (Source: “Freezing Winter Sees Natural Gas Prices Surge,” Zero Hedge, December 28, 2016.)
Chesapeake Energy Corporation (NYSE:CHK), one of the largest producers of natural gas, has seen its stocks rise by more than 300% this year, and more than a third in recent months. This has yet to translate to a market surge (in natural gas stocks).
U.S. President-elect Donald J. Trump has called for increased natural gas production as a way to reduce the energy costs of U.S. consumers and reduce harmful emissions. The weather appears to have complied. The higher natural gas prices could even prompt increased demand for coal.
Trump wants to boost the coal industry’s prospects by promoting clean coal technology, as he asserted during his presidential campaign this year.
“Clean coal” is a term that includes processes and techniques that mitigate the emissions of carbon dioxide (CO2) resulting from the use of coal, especially in electricity production. These processes also include carbon sequestration technology that isolates emissions and stores them underground.
