8 Factors That Affect the Natural Gas Market
In some parts of the country, natural gas is pretty common. It powers heating systems, electricity generation, appliances and vehicles among other things. Residential, commercial and industrial entities all rely on natural gas day in and day out. The thing is, the natural gas market is always changing. The production and prices fluctuate constantly, influenced by a number of outside factors. At the center of it all is supply and demand. The more people need natural gas the more it will be produced and the higher the cost will be. Changes in the supply line can also impact pricing in the market. Understand the carbon-neutral natural gas solutions offered by Spark Energy.
Factors Affecting Natural Gas Demand
Natural gas companies pay careful attention to the demand for their product. Factors that influence the need for natural gas can be short-term or long-term.
What elements have an impact on natural gas?
Environment conditions (temperatures), economic circumstances, and the petroleum market are all factors that influence the demand for natural gas. Let’s dive deeper into some of these factors.
Time of Year
In the winter demand for natural gas is at an all time high because the majority of U.S. homes have heating systems that use it as a power source. If temperatures remain low the increased demand could last into early Spring. Demand gets so high in winter, the U.S. imports natural gas from Canada, Trinidad and a few other countries. Hot weather can affect natural gas costs as well. High temperature tends to impact air conditioning in houses and businesses, which raises natural gas demand in the energy market. The hot weather in mid-summer also increases demand at electric power plants. Currently, about 25% of electricity is generated by natural gas, and that percentage is increasing.
Health of the Economy
When people are doing well financially they are a little less conservative with their energy consumption. During economic downturns and recessions people and businesses scale back their consumption and demand goes down. This is most notable in the industrial sector. Unemployment, the housing market, the stock market and manufacturing indexes can all indicate natural gas demand.
Petroleum and Coal Prices
Petroleum is an alternative of natural gas for power production. If the price of petroleum drops the demand shifts away from natural gas. Some crude oil processors recover the linked natural gas in the oil. A rise in crude oil demand can have a direct impact on the cost of natural gas which is processed alongside it. The same is true for coal to a lesser degree since coal-fired power plants are being retired. Some experts predict the adoption of renewable energy sources will have an impact as well.
What is behind the increase in natural gas prices?
Natural gas prices are determined by supply and demand in the market. Increases in natural gas supply usually lead to reduced natural gas prices. Whereas declines in supply usually result in higher costs. When demand increases it gives rise to increased natural gas prices, while demand drops usually lead to reduced prices. Furthermore, when natural gas price increases, consumer consumption reduces. When prices are lower prices it has a reverse impact on consumer demand.
Nuclear Plant Operation
This factor is one that you may not think about but can have a big impact on the natural gas market. When nuclear plants are down and not working more natural gas is needed to produce electricity.
Factors Affecting Natural Gas Supply
Anything that aids or disrupts the production, storage or import of natural gas is a factor that affects supply. Natural gas prices on the supply-side are influenced by factors such as the volume of natural gas produced by manufacturers, the volume of natural gas in reserve, the number of natural gas imports, and the number of natural gas exports. Natural gas prices are also influenced by demand-side factors such as the fluctuation in temperature, economic factors, and the cost and demand of energy sources that are available.
Natural gas production is always going to be influenced by the weather since the job requires pulling resources out of the earth. Normal rainstorms can slow down workers out in the oil fields, but big storms can be majorly disruptive. A hurricane or tornado can cause serious damage to equipment, make working conditions unsafe and derail the supply chain. For example, when hurricanes Katrina and Rita hit the Gulf of Mexico natural gas prices increased.
This one is pretty straightforward. The level of production is the most direct factor affecting supply. Typically, production ramps up when demand is high or reserves are low.
Underground storage facilities make it possible to supply natural gas year round. When there’s an abundance of natural gas it’s stored for later use when supply is low or demand is high. The storage level and cost associated with storing natural gas impacts price, which can in turn affect demand. The Energy Information Agency releases a weekly report highlighting how much natural gas is in government storage facilities.
In the U.S. we produce a lot of our own natural gas, but global factors can affect the market as a whole. Civil unrest at home or in a country we import and export from can be a factor in supply.
Thanks to new drilling techniques, additional sources of electricity and more conscious energy consumers the U.S. is producing slightly more natural gas on an annual basis than we consume. Right now natural gas rates are very reasonable for consumers.
At Spark Energy you can sign up for a natural gas plan for home or business and lock in a fixed rate for 18 months or longer. Check to see if Spark Energy plans are offered in your area!