Oil prices may be down 25% from their highs, bringing down gasoline prices too , but natural-gas prices are still soaring and consumers are likely to feel the effects in the coming months. Natural-gas futures were trading just 1% off of their 14-year highs on Tuesday at $9.20 per million British Thermal Units. Some analysts expect gas to break above $10 in the coming weeks as it becomes clear that there will be a shortage this winter. The last time prices rose above $10 was in July 2008.
Consumers are likely to be hit by escalating electricity and heating costs this winter because of the high price of natural gas. In Europe the problem is particularly acute. In Germany and England, wholesale power prices hit new records this week after having more than quintupled in the past year. Natural-gas futures in Europe are more than 10 times as high as they were a year ago. The problem is that Russia has ratcheted down the amount of gas it's sending to Europe through its Nord Stream pipeline to about 20% of pre-war levels, adding to already-short supplies.
Europe has been importing more American natural gas in liquefied form, but it hasn't fully replaced the Russian shipments, and European gas-storage levels are perilously low. With winter coming, and Europe relying heavily on gas for heating, the situation is likely to get worse. Some households are likely to turn to other sources of heat. Google searches for firewood are soaring in Germany, Bloomberg reported. Germany has also decided to keep three nuclear power plants online this winter after previously saying it would shutter them.
In the U.S., power prices are considerably lower than they are in Europe, but they're still rising. Natural gas is the largest source of electricity generation in the U.S., at about 40%. The wholesale price of power in the U.S. ranges from $62 per megawatt hour (MWh) in Florida to $95 per MWh in the New England and New York areas, according to the Energy Information Administration. In Germany the price is now over $450 per MWh. The U.S. produces more natural gas than Europe and can't export most of it, so U.S. residents get the benefit of lower prices. But U.S. electricity prices are still expected to rise about 6% this year, according to the EIA.
For investors, one way to play the change in prices is to buy companies that profit from shipping U.S. liquefied natural gas to Europe. Among those are Cheniere Energy (LNG), Cheniere Energy Partners (CQP), and Golar LNG (GLNG). Other stocks that benefit from high LNG demand include Shell (SHEL) and EOG Resources (EOG).
In addition, investors can buy natural-gas producers like EQT (EQT), Coterra Energy (CTRA), Southwestern Energy (SWN), and Range Resources (RRC).