Cold snap sends US gas prices higher US natural gas prices has leapt to the highest level in nearly two and a half years after cold gripped much of the country, driving up demand for heat and freezing some output at the wellhead. Nymex January gas reached $4.492 per million British thermal units yesterday, up 2.2 per cent on the week. Gas has gained 29 per cent in the past year. Prices remain well below the levels of five years ago, before the shale drilling boom released trillions of cubic feet of new supplies. The bulk of the week's jump came after the US government reported 285bn cubic feet was released from underground storage last week, the most in any week in records dating back two decades. "That was a very bullish report and it really sent prices spiking higher," said Kent Bayazitoglu, analyst at Gelber & Associates, a Houston consultancy. Volatility implied by gas options markets also ticked up, and some of the Houston hedge funds that specialise in the fast-moving market suffered steep losses because of the moves, investors said. One popular bet on the price premium of gas for March delivery over the April futures contract has quadrupled in value over the past two weeks to 28 cents per million Btu. "All these gas guys have blown out," said the manager of one commodities hedge fund. US gas is largely steered by supply and demand on the North American continent, as plans to ship it overseas are still taking shape. This month, weather has added to the volatility, with cold air to be followed by balmy temperatures this weekend and then more cold in populous regions such as New York. Cold weather increases demand for gas as a heating source. The cold also crimped supplies by freezing the small volumes of water produced alongside gas, blocking wells. Such "freeze-offs" reduced production by a total of 20bn cu ft this month, Morgan Stanley estimates. "Sub-normal temperatures and freezing rain in recent weeks are also ­having a negative impact on production," the bank said. Most analysts are sceptical of a further rally, as power generators may burn more coal for fuel if gas prices rise too quickly. This would reduce demand. Production from shale formations such as the Marcellus in Pennsylvania is also expected to keep growing. The Energy Information Administration estimated this week that US dry gas production would rise 28 per cent in the next decade, while domestic consumption would grow only 8 per cent. The White House has approved several projects to liquefy and export the ­surplus.