Plunging natural gas prices relieve inflation pressure

The price of natural gas used to heat homes and generate electricity is plunging this year, thanks to a mild winter in the U.S. and Europe — bringing some relief to consumers and helping drive down inflation.

The fuel, which in the U.S. is extracted mainly from shale deposits in Texas and around Pennsylvania, accounts for nearly 25% of residential energy needs, making it a big driver in last year’s worst bout of inflation in four decades. Since the start of 2023, U.S. natural gas prices have fallen 40% and Europe’s prices are not far behind.

Much warmer than expected weather throughout Europe and North America played a big part in allowing European supplies to hold out amid the ongoing conflict in Ukraine. The winter has been mild enough that large swaths of the Alps have been mostly green instead of white and typically cold and snowy sections of the U.S. have spent most of the winter well above the freezing mark.

The Energy Department now expects heating bills for U.S. households that use natural gas to rise by 12% this winter instead of 28% it forecast in October. The warm winter has also helped inventories in the U.S., which are expected to close March 16% above the five-year average.

The sharp drop in energy prices comes amid a broader easing of inflation as the Federal Reserve and other central banks fight high prices by raising interest rates. U.S. inflation is at about 6.4%, well below a year ago but still far above the central bank’s 2% target. The Fed says it’ll stay focused on fighting inflation until it’s sure prices are on a sustained downward path.

Energy companies that made record profits last year are now feeling the pinch of falling prices. Natural gas producer EQT Corp. is down more than 8% this year after gaining 55% in 2022. Chesapeake Energy Corp. has lost more than 11% in 2023 after surging 46% last year.