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Today’s high energy prices could be a preview of attractions to come – a true horror movie if it’s a cold winter.

Benchmark US natural-gas prices this month held above $5 per million British thermal unit, close to their highest level since 2014, but they remain fairly similar compared to levels in Europe and Asia. As underground natural-gas storage grows, the inventory situation at home seems to be less dire. The problem is that seasonal storage isn’t happening fast enough, with 7.1% below their five-year average and a low margin for error.


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Not that America has never seen natural gas prices so high. They sometimes touched double digits before the shell boom, but that was during the winter, when every molecule was used to keep the house light and heat up. Today the rest of the world may be in dire need of that gas, as well as America’s coal, when a crisis strikes.

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The US is shipping orders of magnitude more than it was a few years ago. During the first half of the year, the US exported about 10% of its natural-gas production and continues to export at nearly full capacity. Before opening its first export terminals in the lower 48 states in 2016, the US exported less than 1% of its natural gas.

Coal exports are also running high. According to S&P Global Market Intelligence, the US exported 52.5% more coal in the second quarter than a year ago.

The situation in Europe and Asia is even worse, with natural gas reserves in Europe at record lows in September. Benchmark prices in both regions are rising above $20 per mmBtu as competition to attract liquefied natural gas cargo.

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Back at home, meanwhile, there’s less coal for utilities to fall back on when winter turns harsh.

“We’ve heard of examples in the middle of the US where power plants just can’t get coal,” said Ethan Paterno, energy-market specialist at PA Consulting.

The Energy Information Administration expects US power plant coal inventories to fall to 61.3 million short tons at the end of the fourth quarter, down from less than half last year. This is the lowest figure since at least 1997, according to Argus Media.

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Natural gas as well as thermal coal prices are running hot, partly due to strong export demand. Notably, China is importing a lot of coal from the US after banning imports of the commodity from Australia over a diplomatic dispute. Newcastle coal futures are priced at $176 a tonne, more than three times higher than a year ago, among the more liquid benchmark for thermal coal. Higher fuel prices are spreading across the US electricity market. An analysis by EBW Analytics Group shows that electricity futures prices across all major electricity markets have seen a jump in the past one month. In the New England electricity market, forward electricity prices for January–February 2022 are already trading at around $150 per megawatt-hour, up from the $40 to 50 per megawatt-hour average seen during the winter in recent years. A significant leap forward, according to Mr. Paterno.

The cure for tight markets is, of course, higher prices which promote greater supply. But this is hardly a guarantee. According to the EIA, there is a lack of capacity in the coal mines and limited available transportation. Meanwhile, US natural-gas producers that have pledged discipline to their shareholders are unlikely to turn on the tap early. According to Baker Hughes, there were 10 percent fewer active natural gas rigs compared to Sept. 34% a year earlier.

Industrial Energy Consumers of America, a trade group representing manufacturers, sent a letter to Energy Secretary Jennifer Granholm on Friday urging immediate action to reduce LNG exports so the US can stock enough natural gas before winter. If Henry Hub prices rise above $10 per mmBtu, many manufacturers can no longer compete in the market, the group said.

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Christopher Looney, commodities strategist at RBC Capital Markets, said it’s hard to tell how much of an energy-price jump is justified and how much is fundamentally justified by the market being “on the edge”.

By the time we find out, it will be too late.