Natural Gas Prices are Jumping. Consumers Beware.

(Carlos Parra Rios/Bloomberg)

Key Points

• United States natural gas futures settled at $4.58 per million British Thermal Units on Friday, a 50% increase since mid-October.
• The surge in natural gas prices is largely attributed to weather forecasts predicting sustained cold, driving up demand for heating.
• Residential and commercial customers are expected to pay 4% more for natural gas this year, while industrial customers face a 21% increase.

Natural gas prices have been surging, benefiting gas producers but causing a problem for consumers heading into peak demand season.

U.S. gas futures settled at $4.58 per million British Thermal Units on Friday, up 50% since mid-October and just below their 52-week high of $4.65. Prices haven’t traded around these levels consistently since 2022, after Russia invaded Ukraine.

This time, the spike in prices has been driven largely by the weather.  In addition to being America’s largest source of electricity generation, natural gas is a major heating fuel.

“The first half of December may feature the first sustained bullish weather for natural gas in months,” says research firm EBW Analytics Group. Trading patterns should provide “a natural buoyancy for prices before the cold arrives.”

Unlike oil prices—which have been falling because of an oversupply—the natural gas market is more balanced. Demand has risen in part because the U.S. is shipping about 20% more liquefied natural gas overseas than it did last year. Supply is up, too, but not so much that it’s flooding the market.

Analysts are recommending that investors buy the stocks of natural gas producers to take advantage of the trend. Morgan Stanley’s Devin McDermott wrote this week that he generally prefers natural gas names over oil producers, in part because he sees gas prices rising to $5 next year. Among his favorite stocks are Expand Energy and EQT.

For consumers, higher natural gas prices will flow through to their electricity and heating bills. Consumer costs won’t rise as much as wholesale prices, because there are several other factors impacting bills, and utilities often pass the costs along gradually. The Energy Information Administration, the research arm of the Department of Energy, has estimated that residential and commercial customers are likely to pay about 4% more for natural gas this year than they did in 2024, while industrial customers pay 21% more.

Write to Avi Salzman at avi.salzman@barrons.com