Winter storms in parts of the south and central U.S. have led to a surge in the need for power, rallying prices for natural gas as traders look toward a rise in nuclear power demand and consumption of uranium.
The southern Plains has been “transformed into southern Siberia due to brutally cold Arctic air that has toppled century-old records,” AccuWeather reported on Tuesday.
The spot price of wholesale electricity on the Texas power grid jumped by more than 10,000% to over $9,000 per megawatt hour late Monday morning, compared with prestorm prices of less than $50 per megawatt hour, according to a Reuters report, citing data from the Electric Reliability Council of Texas, or ERCOT.
About 36% of U.S. natural gas demand comes from the electric power sector. Prices for the fuel on the futures market rallied Tuesday, with the front-month March contract NGH21, 0.26% up 22 cents, or nearly 7.5%, to finish at $3.129 per million British thermal units — the highest settlement since November.
“The extreme cold is leading to freeze-offs in wells in the Permian Basin and Haynesville shale,” where much of the natural gas that goes to the Henry Hub — the key North American trading point in Louisiana — is produced, said James Williams, energy economist at WTRG Economics. He explained that freeze-offs refer to the freezing of water condensate, which stops a well’s production.
Williams expects that U.S. natural-gas storage numbers from the Energy Information Administration will be down, close to the five-year average in Thursday’s report, which covers the week ended Feb. 12, and fall well below that level in the report next week.
With storage dropping below the average, prices should remain above $3 for some time, he said.
U.S. natural-gas production estimates for Tuesday dropped below 80 billion cubic feet a day, more than 12 billion cubic feet a day below readings at the start of February, according to Luke Jackson, senior energy analyst on the S&P Global Platts North American Natural Gas and Power Analytics team.
Jackson said regional cash prices for natural gas exploded in Tuesday trading, with some price points posting trades as high as $999 per million Btus, “causing the trade limit on the Intercontinental Exchange for some hubs to push over $1,000″ per million Btus.
Despite the unprecedented cold and freeze-offs, however, he said “history suggests production should see a sharp recovery late this week as temperatures warm.”
Meanwhile, nuclear power plants generate around 20% of electricity in the U.S. and the market for uranium, the fuel used in those plants, has also seen a spike.
Uranium futures aren’t very actively traded on Nymex, but the price for the September contract was quoted at $32.65 a pound on Monday, up 9.4%, according to FactSet data.
In Tuesday dealings, uranium exchange-traded funds and miners were up sharply. The Global X Uranium ETF URA, +7.52% was up over 7%. Shares of Denison Mines Corp. DNN, +34.23%, a uranium exploration firm that announced a secondary offering last week, were up over 30%, while Cameco Corp. CCJ, +7.42%, the largest publicly traded uranium company, saw shares move up by over 7%.
Amir Adnani, president and chief executive officer at Uranium Energy Corp. UEC, +7.08%, told MarketWatch that the strength in the uranium sector Tuesday is due to a “confluence of three significant drivers.”
These include strengthening uranium supply and demand fundamentals that have seen an accelerated rebalancing due to the COVID-19 pandemic, a “growing realization of grid reliability issues during the current cold-snap gripping the U.S.,” and the “global mega-trend towards green energy and lower-carbon energy solutions,” he said.
Still, weekly spot uranium prices stood at $28.55 a pound as of Feb. 15, down from a weekly price of $30.05 on Jan. 4, according to data from nuclear-fuel consulting firm UxC, LLC.
Prices are down around 5% so far this year and “we are continuing to see a downward trend in the immediate term as sellers outnumber buyers,” said Jonathan Hinze, president at UxC. “Although we expect additional buying to emerge over the year, the market is still oversupplied in the near-term leading to a softness in spot prices.”
“Supply in 2021 is likely to be somewhat higher than 2020 as some of the COVID-related production impacts lessen,” but in terms of the overall supply/demand situation, “we are continuing to work off previously built-up inventories,” he told MarketWatch. “This should help to rebalance the market over the medium term, but demand, especially from utilities, clearly needs to pick up for this market to see a more sustained upward price trajectory.”
Still, Tuesday’s trading does reveal how important nuclear energy is in supporting the nation’s power needs.
“The cold weather resulting in peak energy demand shows that the steady, baseload supply from nuclear plants is invaluable in times like this,” said Hinze. “Thus, a greater appreciation of the long-term benefits from nuclear power, which is also the only non-emitting baseload electricity source, should lead to rising uranium demand in the coming years.”