If you keep an eye on natural gas prices, you’ve likely noticed an increase over the past few months. So what’s driving this pricing trend? And is this the new norm? Read below for a few highlights from our latest Customer Insights article.
Factors Driving Current Prices
· LNG Demand – The global market has created a huge demand for liquified natural gas (LNG), specifically in Asia and Europe. These areas don’t have nearly the gas supply that the United States does; however, they have increased their natural gas usage as a way to retire older and less environmentally-friendly sources like power plants that run on coal or nuclear power. This demand is creating a favorable spread of the price to liquefy natural gas domestically and export it to these markets. That means there is a constant demand from LNG producers to purchase natural gas and liquefy it.
· Storage – The U.S. has been running at a deficit to our 5-year average natural gas levels, as well as a large deficit to our position one year ago. A lot of factors come into play with the overall levels we put into storage nationwide, however we have been consistently under-injecting compared to previous years. Storage has been trying to catch up these last few weeks on the heels of some milder weather, however it’s still under the 5-year average and well under where we were last year.
· Weather – Weather is probably the biggest single driver of gas prices. When we have extended periods of hot, record-setting weather, that translates into more power usage for cooling. This increased demand for power is fueled by power plants that operate on natural gas, creating another area of demand for natural gas that has been very strong this season. There has also been an extremely high wildfire season on the west coast driven by an ongoing drought, which also impacts hydro-electric generation, putting a heavier reliance on natural gas generation. This is helping prices climb and has made the west coast the most expensive natural gas market in the country over the summer.
· Hurricanes – While technically part of the weather, hurricanes deserve their own designation. If a large hurricane approaches oil-producing areas like the Gulf of Mexico, it can wreak havoc. They can take oil rigs completely offline for an extended period of time with sometimes catastrophic damage that takes an extended period of time to repair. Hurricane Ida made landfall in Louisiana in August 2021 as a category four hurricane. That caused major damage to numerous production rigs that are still trying to get back online. This has caused less oil and natural gas production than expected, which has contributed to the supply and demand increase in prices we have seen.
Is This the New Norm?
Looking at future pricing, it looks like the answer the market is giving is no. We are currently in an elevated market with several drivers maintaining pricing where it is, in the near-to- mid-term. There’s a lot of variability, but the market indicates that this is likely a seasonal issue that will be corrected in the future.
If you’d like to take a deeper dive into natural gas pricing trends, read our latest edition of Customer Insights. Questions about your business’ natural gas? Contact our Small Business Energy Consultants at this link or by calling 877-648-1936.
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