The Great Debate (On Natural Gas)

Yes, there is a Great Debate going on in the US right now. Powerful forces are maneuvering for position in order to exert its will on the other side.

Are we talking about Hillary Clinton and Donald Trump? Nope.

We are talking about supply and demand for natural gas.

Since Q1 2016 the price of natural gas has been trending up with near month prices recently topping $3 to the highest levels in over a year. This is being driven by a reduced supply of natural gas compared to recent years.

Near-Month Natural Gas Futures Prices (NYMEX) chart

That’s right. Demand is winning – or maybe more accurately, supply is losing. We all remember from high school when supply is less than demand prices rise. Just like out of the old textbook.

There are lots of forces at work impacting supply and demand. But the fundamental measure of where things are at is the weekly gas storage report that is released by the Energy Information Administration (EIA) each Thursday morning. This number is widely watched by all industry insiders as a preview of where prices may be going.

The following graph depicts the current inventory levels of natural gas.

Weekly Gas Storage Report

EIA Weekly National Gas Report for 10-11-16

The black line indicates this year’s trend which shows current natural gas inventories at the bottom end of the 5-year range. This report marks the 20th straight week of injections below year ago and below the 5-year average.

So what does this mean for you? Prices did break through the $3.00 resistance level so it becomes easier for the market to push prices higher. How high? Nobody knows but a cold winter, continued depressed numbers of well heads and the potential of growing exports could very well put continued upward pressure on gas prices. And as we know in most markets natural gas prices also have a direct impact on power prices especially with the shift towards gas-powered generation.

So check you energy contracts to make sure you are covered against higher prices. If you have questions, don’t hesitate to reach out to your Nextility representative.

A portrait of Nextility's General Manager Dan Sullivan. And he's glad to meet you.
Meet The Author:
Dan Sullivan, General Manager, Nextility