Increases in natural gas supply usually lead to reduced prices, whereas declines in supply usually result in higher costs. Demand increases tend to lead to higher prices, while demand drops tend to lead to lower prices. Higher prices, on the other hand, tend to temper or reduce demand while encouraging output, whereas lower prices have the reverse effect.
Short-term spikes in demand and/or reductions in supply may cause major swings in natural gas prices, especially during the winter, due to natural gas supply infrastructure constraints and the inability of many natural gas consumers to switch fuels fast.
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.
Will natural gas prices continue to rise?
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)
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?
Will the price of natural gas rise in 2022?
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.
Will the price of natural gas drop?
In its natural gas prediction released on March 8, the EIA predicted that Henry Hub’s spot price will average $3.95/MMBtu in 2022, down from $4.06/MMBtu in 2021. On predicted increasing output, it could decline to $3.59/MMBtu in 2023. It predicted that US natural gas output would average 96.7 billion cubic feet per day in 2022, up 3.1 billion cubic feet per day from 2021, and rise to 99.1 billion cubic feet per day in 2023.
BofA anticipated that Henry Hub may trade at an average of $4.10/MMBtu in 2022, based on production growth of 4 bcfd year over year, in its natural gas pricing outlook released on March 25. In 2023, the price is scheduled to decline to $3.40 per MMBtu.
Trading Economics predicted Henry Hub would trade at $5.81 by the end of the quarter and $6.70 within a year as of March 31.
Henry Hub is expected to trade at an average of $4.10/MMBtu in 2022 and $3.40 in 2023, according to BofA. Analysts did not provide a pricing projection for the Henry Hub in 2030.
Why is natural gas becoming more expensive?
“The price of natural gas is significantly higher this winter than it was at this time last year due to an increase in global demand and extreme weather in gas-producing states that created supply constraints at the same time,” Ress told MassLive. “After hitting 10-year lows during the COVID-19 pandemic, the price of natural gas is significantly higher this winter than it was at this time last year due to an increase in global demand and extreme weather in gas-producing states that created supply constraints at the same time.”
What is the best way to trade natural gas futures?
A futures contract, such as the CME’s Henry Hub natural gas futures contract, is the most frequent vehicle for traders to take a position on natural gas. With a futures contract, traders agree to supply a specific amount of natural gas at a predetermined price at a future date. This does, however, imply that the trader may have to accept delivery of the asset at some point.
Is natural gas affected by cold weather?
Because the material composition of gas pipes is particularly resistant to cold, they do not freeze in cold weather. As a result, the only way a gas pipe will freeze is if there is liquid in or around it, as the liquid will condense into ice crystals that could potentially encircle the pipe.
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.
What will the price of gasoline be in 2024?
According to our econometric models, long-term US gasoline prices are expected to trend at 1.38 USD/Liter in 2023 and 1.46 USD/Liter in 2024.
