Polar vortex heading for Texas sends natural gas prices jumping over 400%

(Bloomberg) – Natural gas prices shot up more than 400% as a deep freeze is set to hit Texas, potentially sending demand for the heating fuel soaring.

Spot prices for the key U.S. Henry Hub in Louisiana for the long holiday weekend rose as high as $17 per million British thermal units last Friday, Jan. 12, trading in a range of $15-$17, according to market participants with knowledge of the matter who asked not to be named because the information is private. That compares with more than $3 for the most actively traded futures, which are for delivery next month.

Texas has ushered in a series of power-market reforms in an attempt to avoid repeating the deadly blackout that hit in February 2021 and left millions without power for days. The episode sent energy prices soaring, and more than 200 people died amid a lack of heat during the extreme cold.

Cold weather can cause freeze-offs, a condition when equipment related to natural gas production or pipelines can malfunction, curbing supply. Rising spot gas prices can be an indicator that traders are worried about high demand and freeze-offs lowering supply. Forecasts signal that parts of the state will see a brief but severe freeze, indicating volatile trading activity will likely persist at key U.S. gas market locations.

A polar vortex is rattling the North American gas market, as traders from Calgary to Houston brace for volatile demand after months of stagnant prices. Wintry weather has also pressured the Canadian AECO hub, which rallied to its highest since January 2023 and has soared up 58% this week.