By Matt Egan, Chris Isidore, CNN
New York (CNN) — Severe winter weather warnings have fueled extreme price hikes in the notoriously-volatile natural gas market.
The contracts for near-term US natural gas futures have skyrocketed more than 70% so far this week, according to FactSet data. That leaves natural gas on track for the biggest weekly increase since 1990 and at the highest price since 2022, according to Bloomberg.
The explosive move has been driven by meteorologists warning of one of the most extreme winter storms in years. As much of the country soon enters a deep freeze, people cranking up the heat in their homes could deplete some stockpiles of natural gas.
Darrell Fletcher, managing director of commodities at Bannockburn Capital Markets, said he’s only seen a few moves in natural gas futures like this in his 30 years as a trader.
“The next week will be very challenging,” he said.
And that challenge is three-fold. The cold not only drives demand up, lower temperatures can disrupt the flow of gas through pipelines and derail production at key natural gas hubs across the country.
A perfect storm for high prices
Natural gas is America’s leading home heating source, so extreme cold will dramatically increase demand.
But the storm could also drive up demand for electricity. Some areas of the country, particularly in the South, use electricity to heat homes. And natural gas accounts for about 40% of US electricity generation – more than the next two fuel sources, coal and nuclear, combined.
“Extremely cold temperatures are going to cause a monster decline in natural gas storage,” said Robert Yawger, commodity specialist at Mizuho Securities.
Yawger said that the amount of natural gas in storage could plunge by the second greatest amount on record, based on the expected demand surge.
At the same time, the winter storm threatens to drop temperatures so low that it derails some production in the nation’s leading natural gas hubs in Texas, Louisiana and Appalachia.
“If we see several days of production declines – combined with demand increases – that could really do a number on storage,” said Patrick Rau, senior vice president of research and analysis at Natural Gas Analysis.
Ole Hansen, head of commodity strategy at Saxo, said energy traders are also bracing for “freeze-offs,” which occur when water solidifies inside pipelines and infrastructure, sidelining the flow of gas and shrinking output.
“These events tend to emerge precisely when demand peaks, amplifying price moves,” Hansen said in a note.
If there is a prolonged period of high natural gas prices, it could also undermine the White House’s efforts to show progress on voters’ affordability frustrations.
Neither the White House nor the US Department of Energy responded to requests for comment.
Natural gas futures are typically extremely volatile, in part because of its storage and transportation limitations. Winter weather can cause explosive spikes that quickly fade when temperatures warm up.
“It’s a wild animal and trading like a maniac right now,” Yawger said.
The good news, relatively speaking, is that the price spike is contained to near-term contracts, while later-dated ones are not up by nearly as much.
Beyond the weather, analysts say that the relatively new phenomenon of natural gas exports is another factor behind the price spike.
In recent years, a large chunk of natural gas produced in the United States has been getting shipped overseas as liquefied natural gas (LNG). The US has enormous gas resources, and there’s