Natural-Gas Prices Surge as Summer Cooling Season Switches On

Natural-gas prices are heating up ahead of air-conditioning season, hitting the highest level in about 14 years.

Prices topped $ 9 per million British thermal units for the first time since 2008, before frackers flooded the market with cheap shale gas. The cost of the power-generation fuel has added more than 20% this month and tripled over the past year, adding pressure to household budgets and manufacturing costs.

Natural gas has been a major driver of inflation, and prices have been accelerating. In addition to heating and cooling, gas prices factor into the cost of producing electricity, fertilizer, plastic, cement, steel and glass. Profits are being pinched at businesses ranging from beer-box makers and wallboard manufacturers to bitcoin miners, and higher costs are trickling down to prices for consumers and putting pressure on the Federal Reserve to raise interest rates.

Dollar Tree Inc.

executives told investors Thursday that although high energy prices and inflation can send customers to their more than 16,000 discount stores, the company itself faces higher costs. The firm has already raised most prices at its namesake stores to $ 1.25, from $ 1, and warned investors it expects its expenses to mount during the rest of the year.

“Natural-gas price increases are affecting utility costs throughout the business,” finance chief Kevin Wampler said during a call to discuss first-quarter earnings.

Fuel traders and analysts say prices could climb even higher if hot weather arrives and air conditioners are cranked up before enough gas can be injected into storage facilities ahead of winter, when the fuel is burned for heat.

US gas inventories ended last week more than 15% lower than the five-year average, the Energy Information Administration said Thursday. The deficit of stored gas grew during the week because of a smaller-than-normal build of stockpiles.

Inventories have been whittled down by strong demand for liquefied natural gas, or LNG, among European buyers replacing Russian gas and domestic drillers who have been slow to increase production despite the highest prices in years. US gas output has rebounded from the lockdown lows but has not kept up with demand because of shortages of roughnecks and rigs, limited pipeline capacity in some regions and executive compensation plans that these days encourage profitability over production growth.

Meanwhile, the highest Appalachian coal prices ever and reduced hydropower due to drought in the US West have boosted demand for electricity generated by burning gas. Forecasters expect the La Niña weather pattern to deliver another hot summer, except possibly in the South, where unusual humidity could keep air-conditioning demand elevated even if temperatures aren’t.

US electric bills have soared, and are likely to move higher as households break out their air conditioners. WSJ’s Katherine Blunt explains why electricity and natural gas prices are up so much this year and offers tips on how to manage the expense. Illustration: Mike Cheslik

“There’s almost no ceiling for natural gas,” said Kent Bayazitoglu, analyst at energy consultant Baker & O’Brien Inc. “You can reduce your driving a lot easier than you can reduce your natural gas consumption.”

Investors have flocked to producers’ shares as other stocks have tumbled. Shares of EQT Corp.

, the biggest US gas producer, have more than doubled over the past three months while the S&P 500 stock index has lost more than 7%. Comstock Resources Inc.,

which drills just north of the LNG export terminals along the Gulf Coast of Texas and Louisiana and is majority-owned by Dallas Cowboys boss Jerry Jones, has more than doubled since Russia invaded Ukraine in late February.

Hedge funds and other speculators this month reduced their bets on rising prices as futures climbed from about $ 7 at the end of April, Commodity Futures Trading Commission data show. The bullish bets that remain are nearly equal to outstanding short positions, or wagers that prices will fall.

The trading firm Ritterbusch & Associates told clients that low inventories and the high number of bets on falling prices were the reasons it lifted its forecast for July futures to rise as high as $ 10, up from $ 9. The idea is that if prices keep rising, traders with short positions will have to buy futures to close out their bets, pushing up prices even more.

Futures for June delivery, which expired Thursday, ended at $ 8,908, down from a high of $ 9,401. July futures settled at $ 8,895 in more-active trading.

High oil and gasoline prices could help keep a lid on natural-gas prices by encouraging drilling in such places as West Texas, where crude is the target and a lot of gas is the byproduct, Mr. Bayazitoglu said. He expects natural-gas prices to ease once the first big summer heat wave passes.

“It’s like a roller coaster,” he said. “You do not get nervous going down, but going up.”

Write to Ryan December at ryan.dezember@wsj.com

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