Blog

How Weather is Impacting Natural Gas Price….
Comments0

Introduction

Natural gas(NG) is widely used in daily life. It supports the American economy and also is major producer for NG. Oil & Gas industry accounts for 7.6% contribution towards the U.S. GDP.

In US natural gas is produced from these places:

Research Services

Natural gas (NG) also has many uses:

Research Services

There are various factors which impact NG prices and now let us understand few of them.

1.       Demand and Supply

 Increase in natural gas supply generally results in lower NG prices and vice-versa, simple demand and supply rule. In turn, higher prices follow moderate or reduced demand and encourage productions whereas lower prices tend to have the opposite effects. NG storage data is released every Thursday by Energy Information Administration (EIA). This data measures the change in the number of cubic feet of natural gas held in underground storage over the prior week.   

 2.        Weather

During winters, demand for NG increases since its usage increases in areas like cooking, heating water, lighting a fire etc, which are used by both residential and commercial consumers; which entails upward pressure in NG prices. If severs a cold occurs, the effect on prices can intensify because suppliers are unable to meet the immediate increase in demand. This effect may be greater if the NG transmission (pipeline) system is already operating at or near full capacity.

In summer, high temperatures can have both direct and indirect effects on NG prices. Hot weather tends to increase the demand for air conditioning in homes and buildings, which leads to a rise in demand for NG by the power sector. In addition, increase in NG consumption by the electric power sector during the summer may lead to smaller than normal injections of natural gas into storage and to lower available storage volumes in the winter, which will consequently affect prices.

Research Services


Correlation between Weather and NG Storage:

  Research Services

Now let us understand how the weather is impacting the price using the below Chart .

For illustration purpose, let us take the closing price of NG(NYMEX) {from Jan, 2018 to Jan, 2019} and weather data of Texas City as it is the largest natural-gas production city. From the data, we can interpret that as temperature decreased and the overall consumption level increased, it led to rise in prices of NG.

Research Services

3.Very Cold Weather To Impact Production: If the temperatures drop low enough, operations cannot produce at full capacity. Poor traffic conditions caused by snow can also disrupt the transportation of oil products to storage facilities. If these supply disruptions occur when demand for natural gas is high, prices will increase more than expected.

Conclusion

Thus, we conclude if weather continues to be on extreme sides; either in summers or winters, we may see an upward trend in NG prices.  

Disclaimer

Author Image

Comment