With the first major cold snap of the year sending temperatures plunging across the state, ERCOT has issued a weather watch advisory through Friday due to increased demand.
The increased energy demand nationwide has caused natural gas prices to spike, and according to energy analyst Matt Smith of Kpler, oil prices are up right now, too. He spoke with the Texas Standard’s David Brown about how markets are moving right now and what we can expect as we move into 2025.
This transcript has been edited lightly for clarity:
Texas Standard: With this polar vortex hitting Texas, as well as other parts of the country, it makes sense that natural gas prices might be moving higher. One would expect such to be the case. What about these oil prices rising?
Matt Smith: Yeah, so actually, with natural gas just today, we’re seeing it up nearly 11%. And so that’s ripping, which makes sense, you know, given that you have increased demand for natural gas in terms of the power generation sector for heating demands as we see temperatures plummeting across the country here.
But oil prices, as you mentioned, they’re rallying. And that has been in part due to the influence of global markets. You know, oil is a global commodity, but it’s also being influenced by freeze-offs or the fear of those. And freeze-offs are essentially when oil production is halted because of freezing temperatures.
And while that does impact natural gas production, too, it has more of an influence for oil because U.S. production is so polarized in Texas, where you’re not used to seeing those freezing temperatures. But, you know, in Midland, which is the epicenter of the Permian Basin, we’re seeing lows in the in the 20s for the whole of this week. And so that’s really helping to to bolster oil prices at the moment.
This next thing I’m going to ask you is kind of based in some assumptions, but I think they’re assumptions that listeners have. I think about, for instance, with all the inclement weather – we’re hearing about the storms moving up the East Coast; we could be seeing some frozen precipitation here in Texas as the week continues – maybe lower demand for gasoline with this inclement weather, fewer people driving. You might expect prices to be sort of slipping lower.
Yeah, yeah, absolutely. And as you mentioned there, not just for Texas, but, you know, there’s this huge swath of the Midwest where they’ve had freezing rain as well as snow. And no one no one wants to drive on an ice rink unless they have to. And so the thing is, the rise in oil prices is pulling gasoline prices higher as well. So it’s like a rising tide raises all boats. It’s kind of in the slipstream of that.
But another consideration is diesel demand. So that’s heating oil demand. So that has been rising to meet higher heating needs in parts of the U.S. And the kicker to this – and this relates to the Gulf particularly – is that we’re seeing higher exports of diesel as well, and those come out of the U.S. Gulf.
And that’s not just to Latin America, the leading destination, but to Europe as well. And that’s for the same reason there in terms of weather.
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Let’s talk a little bit about Europe. I haven’t been keeping up with the forecasts there. I gather you might be more in tune with what’s happening over there. What’s happening? And this coming at a time when we’re hearing about natural gas flows from Russia coming to a stop.
Yeah, exactly. So Europe has been having a cold spell, and their power prices have been boosted by rising natural gas prices – because, you know, they don’t have that much production like we do in the U.S. here. They’re having to pull it in from the likes of us.
And so as those natural gas prices rise, they’re having to pay up and pull that away from Asia essentially. And so their prices are going up.
Further impacting this move, as you mentioned here, is that Ukraine halted the flow of natural gas via pipeline from Russia through Ukraine on New Year’s Day. So that has stopped flows going to several European countries. So that’s only adding further supply woes there.
That said, this is kind of wild: Russian LNG flows to Europe haven’t stopped. LNG is that liquefied natural gas that moves on ships. That has actually climbed to the highest ever last year. And so the U.S. is the leading supplier of LNG to Europe, but amazingly, Russia is still second.
That is pretty incredible. I want to turn back to gasoline prices for just a moment. What’s the national average right now?
So Texas is about $2.65, and nationally it’s just above $3 a gallon. But because we’re seeing a stronger start to the year in terms of oil prices, it’s unlikely that we’re going to see a swoon for pricing on the national average below $3 there. But for Texas, a price of $2.65, that is nothing to complain about, right? That’s pretty good times.
I’m wondering if you could pull that crystal ball out from under your desk there for just a moment. What do you see in the future for 2025? Is this going to be a happy new year in the energy industry or for consumers, or how do you see it breaking down?
More of the same. So we’ve been in this kind of range for oil prices in the 70s here last year, and we’re expecting a very similar case for this year, which when you translate that to prices at the pump, means that for Texas, you know, we’re going to see these prices $3 or below that. So a good thing here. So hopefully more of the same of what we saw last year.
