Factors Relating to Natural Gas Markets

Factors on the supply side that may affect prices include variations in natural gas production, net imports, or storage levels. Increases in supply tend to pull prices down, while decreases in supply tend to push prices up.

Factors on the demand side include many things related to economic growth, energy technolgy etc. but the one major factor which always remains true…Weather.  ‘Weather’ trumps all others (in our opinion).

Domestic Supply and Prices Can Be Cyclical

Most of the natural gas consumed in the United States comes from domestic production. Lower production can lead to higher prices, but those higher prices, in turn, can lead to increased drilling for natural gas and eventually increased production.

Beginning in the second half of 2008, natural gas prices declined significantly with the economic downturn and a decline in natural gas consumption. These lower prices were accompanied by a steep decline in the number of drilling rigs drilling for gas. That erosion of drilling activity, combined with production cutbacks in response to current and projected low demand, are expected to lead to a drop in natural gas production. As economic recovery leads to increasing demand for natural gas in the industrial sector, natural gas prices are expected to rise again.

Severe Weather Can Disrupt Production / Transport

Hurricanes and other severe weather can affect the supply of natural gas. For example, in the summer of 2005, hurricanes along the U.S. Gulf Coast caused the equivalent of about 4% of U.S. total production to be shut in between August 2005 and June 2006.

Pipeline Imports from Canada

In 2008, pipeline imports amounted to almost 16% of total natural gas consumption. About 99% of the pipeline-imported natural gas came from Canada with the remainder from Mexico. Today in 2019, Canada still plays a major role in supplying natural gas to the US, especially in areas where HNG operates.  With extreme winters causing supply disruptions anything north of the boarder can have a substantial impact on the US’s Midcontinent markets.

Liquefied Natural Gas (LNG) Exports Increase

U.S. liquefied natural gas export capacity to more than double by the end of 2019. EIA projects that U.S. liquefied natural gas (LNG) export capacity will reach 8.9 billion cubic feet per day (Bcf/d) by the end of 2019, making it the third largest in the world behind Australia and QatarDec 10, 2018 EIA.Gov

Strong Economic Growth Can Drive Up Natural Gas Demand and Prices

Economic activity is a major factor influencing natural gas markets. When the economy improves, the increased demand for goods and services from the commercial and industrial sectors generates an increase in natural gas demand. This is particularly true in the industrial sector, which is the leading consumer of natural gas as both a plant fuel and as a feedstock for many products such as fertilizer and pharmaceuticals.

Winter Weather Strongly Influences Residential and Commercial Demand

During cold months, residential and commercial end users consume natural gas for heating, which places upward pressure on prices. If unexpected or severe weather occurs, the effect on prices intensifies because supply is often unable to react quickly to the short-term increased level of demand. These effects of weather on natural gas prices may be exacerbated if the natural gas transportation system is operating at full capacity. Under these conditions, prices must increase enough to reduce the overall demand for natural gas.

Hot Summer Weather Can Increase Power Plant Demand for Gas

Temperatures also can have an effect on prices in the cooling season as many electric power plants that are operated to meet air conditioning needs in the summer are fueled by natural gas. Hotter-than-normal temperatures can increase gas demand and push up prices.

Natural Gas Storage Plays a Major Role in Supplying Peak Winter Demand

Current Storage Report

Oil Prices Can Influence Natural Gas Prices

Some large-volume gas consumers (primarily industrial consumers and electricity generators) can switch between natural gas and oil, depending on the prices of each. Natural gas and coal markets can also interact when the price of natural gas falls significantly. Electricity generation using natural gas can even become attractive relative to coal-fired electricity generation in some areas of the Country. Because of this interrelation between fuel markets, when oil prices fall, the shift in demand from natural gas to oil pulls gas prices downward. When oil prices rise relative to natural gas prices, there may be switching from oil to natural gas, pushing gas prices upward.