Natural gas futures dropped Thursday as the latest government inventory report surprised to the downside after climbing more than 77.0 cents in the previous three days. Prices were further pushed by some softening in the early March projection, with the March Nymex contract finishing 23.1 cents lower day over day at $4.486. The price of April fell 14.2 cents to $4.430.
Why is natural gas becoming more affordable?
Despite a larger-than-expected storage depletion last week and projections for colder weather and increased heating demand over the following two weeks, the price reduction occurred.
What factors influence natural gas futures?
Natural gas prices are mostly determined by supply and demand in the market. Because there are few short-term alternatives to natural gas as a fuel for heating and electricity generation during periods of high demand, changes in supply or demand over a short period of time can result in significant price fluctuations. Prices frequently operate as a supply and demand balancer.
Natural gas output, net imports, and storage inventory levels are all supply-side factors that influence prices. Supply increases tend to draw prices down, while supply decreases tend to push prices up. Natural gas production and imports, as well as sales from natural gas storage stockpiles, tend to increase when prices rise. Prices that are falling have the opposite effect.
Weather (temperatures), economic conditions, and petroleum prices are all factors that influence demand. Cold weather (low temperatures) increases heating demand, whereas hot weather (high temperatures) increases cooling demand, causing electric power plants to use more natural gas. Economic conditions have an impact on natural gas demand, particularly among industries. Petroleum fuel prices, which may be a cost-effective alternative to natural gas for power producers, factories, and major building owners, may help to reduce demand. Higher demand usually results in higher pricing, whereas decreased demand can result in lower prices. Price increases and decreases have the effect of reducing or increasing demand.
Other FAQs about Natural Gas
- Does the EIA provide state-by-state estimates or projections for energy output, consumption, and prices?
- Is the EIA aware of any unplanned disruptions or shutdowns of energy infrastructure in the United States?
- Is the EIA able to provide data on energy use and prices for cities, counties, or zip codes?
- In the Weekly Natural Gas Storage Report, how does EIA determine the year-ago and five-year averages?
- A kilowatthour of electricity is generated using how much coal, natural gas, or petroleum?
- How much does it cost to produce electricity using various power plants?
- How much of the carbon dioxide produced in the United States is due to power generation?
- What are the differences between Ccf, Mcf, Btu, and therms? What is the best way to convert natural gas costs from dollars per Ccf or Mcf to dollars per Btu or therm?
- Why am I paying more for heating oil or propane than what is listed on the EIA website?
Why are natural gas prices rising so quickly?
“The heating demand outlook for the eastern-third of the United States has considerably improved for this weekend and the last week of January,” Again Capital’s John Kilduff said, warning that a cold blast expected for Friday might result in record natural gas demand on Saturday.
“The weather has gone from being a non-factor or a bearish element throughout the season to being a substantial driver for prices and demand,” he noted.
Natural gas prices fell 36% in the fourth quarter of 2021 after soaring for much of the year, owing to mild weather and market anxieties caused by the omicron variant.
Despite this, the contract gained 47 percent in 2021 and is already up over 30% in 2022.
“Prices are heading higher across the North American complex because to the cold weather and legitimate concerns about tighter supply,” said Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings.
Will natural gas prices continue to rise?
According to our newest Short-Term Energy Outlook, we expect marketed natural gas production in the United States to climb to an average of 104.4 billion cubic feet per day (Bcf/d) in 2022 and then to a record-high 106.6 Bcf/d in 2023. (STEO). Over the next two years, the Lower 48 states (L48), excluding the Federal Offshore Gulf of Mexico, will account for almost 97 percent of output (GOM). The remaining 3% will come from Alaska and the Gulf of Mexico.
The wholesale spot price of natural gas at the U.S. benchmark Henry Hub will average $3.92 per million British thermal units (MMBtu) in 2022, an eight-year high, and $3.60/MMBtu throughout 2023, according to our estimates. We foresee ongoing increases in drilling activity and natural gas production in the United States as a result of these high prices.
Legacy production in the L48 is expected to average 83.2 Bcf/d in 2022 and reduce 21% to 65.9 Bcf/d in 2023, according to our prediction. In 2022, new well production will add 18.1 Bcf/d, rising to 37.8 Bcf/d in 2023, balancing diminishing legacy well production and increasing total L48 marketed gas production to 103.7 Bcf/d in 2023.
The Appalachia region in the Northeast, the Permian region in western Texas and southeastern New Mexico, and the Haynesville region in Texas and Louisiana will all contribute to increased natural gas production in the United States.
According to our STEO prediction, Haynesville output will increase by 1.6 Bcf/d yearly on average during the next two years. Drilling in the Haynesville region remains cost-effective, even with deeper and more expensive well development, as long as natural gas prices remain high. Haynesville also attracts operators due to its higher well productivity and closeness to liquefied natural gas export ports and significant industrial natural gas customers along the US Gulf Coast.
The Permian region is expected to add 2.2 Bcf/d to production increase in 2022 and 1.2 Bcf/d in 2023, according to our estimates. Our projection for the West Texas Intermediate crude oil price stays over $60 per barrel, prompting operators to ramp up oil-directed drilling in the region, resulting in increased associated gas output.
In recent years, the Appalachia region has contributed the most to domestic natural gas production in the United States, contributing about one-third of L48 output annually since 2016. Despite the fact that production growth has slowed in recent years due to reduced drilling activity and emerging pipeline capacity constraints, Appalachia well-level productivity has increased, partially offsetting the drilling reduction. Production in the Appalachia region is expected to increase by 0.3 Bcf/d in 2022 and 0.7 Bcf/d in 2023, according to our estimates.
What will the price of natural gas be in the future?
Natural gas prices are expected to continue near $4/MMBtu in 2022 and 2023, according to the EIA – Today in Energy – US Energy Information Administration (EIA)
Is natural gas on its way out?
While there are efforts to phase out the usage of natural gas in the future, most analysts believe this will not happen until at least 2040.
Is natural gas affected by cold weather?
Inside our homes, gas pipes are not exposed to freezing unless there is a presence of water near the gas line that could accumulate and cause freezing. Natural gas, despite being exposed to trace levels of water compounds, is too dry to freeze in cold conditions.
Main supply gas lines are intended to resist a wide range of temperatures, making them reasonably weatherproof.
Natural gas distributors frequently subject natural gas to extensive drying operations before distributing it to their customers. This drying procedure is designed to avoid the production of hydrates, liquid water component deposition, and condensation, all of which can lead to the formation of ice crystals, which can damage gas pipes.
Steel, copper, and brass are the most common household gas pipes seen in residential settings. Black steel, on the other hand, is the most prevalent material for gas piping. Galvanized steel is not available in black. This material is resistant to extremes of heat and cold, making it an excellent choice for gas piping. Gas pipes are prone to vary depending on where you reside in order to accommodate for adverse weather.
Where is fracking taking place in the United States?
North Dakota, Arkansas, Texas, California, Colorado, New Mexico, and Pennsylvania are just a few of the states where fracking is taking place. Vermont recently outlawed the practice, despite the fact that no wells are currently being drilled in the state.
Is natural gas a worthwhile investment?
Is it wise to invest in natural gas? Due to oversupply and fluctuating pricing, natural gas investment has been difficult in recent years. Demand for the cleaner fuel, on the other hand, is expected to increase in the future years, benefiting natural gas supplies. As a result, it could be a sound long-term investment.
Why did the price of gasoline rise in 2022?
Oil companies have been slow to catch up to the sharp spike in gasoline consumption, according to De Haan, after shutting down wells and laying off personnel. As a result, prices increased.