Natural Gas FAQ
Why have natural gas commodity prices increased in recent years?
Pricing is largely tied to natural gas supply and demand across North America. Present and future production and storage levels are two of the major determining factors. Others include weather (heat waves, cold snaps and hurricanes), economic growth and the cost of competing fuels.
Increased demand for natural gas puts upward price pressure on the commodity. In recent years strong demand has been due, in large measure, to its attractiveness as a clean burning alternative to other fossil fuels such as coal and fuel oil. Conventional gas-bearing basins across the continent are becoming less productive forcing the industry to turn to less conventional and more costly methods of production.
Since natural gas competes with oil as a source of fuel, higher oil prices have the effect of supporting higher natural gas prices, particularly when the supply/demand balance is tight.
Why is natural gas less expensive now then it was in the winter of 2007-08?
There are two primary drivers affecting commodity pricing. Increased production drives prices lower whereas increased market demand drives them higher. Weather is the largest single factor affecting natural gas demand but it is also a wild card when it comes to predicting natural gas prices. A particularly warm winter can drive prices lower, while a cold winter across much of the continent can dramatically increase prices.
With ample gas in storage for winter supply and no significant production threats, short-term pricing is very soft. The recent downturn in the economy has also caused some demand destruction as industrial demand declines.
