Gas prices Trend

NGA ISSUE BRIEF: Natural Gas Price Trends
June 30, 2014 – 12:34 pm
The trend in natural gas commodity prices in the U.S. has been toward lower and more stable prices, as the country experiences high domestic production.

The key variables in natural gas price formation generally include production levels, demand growth, the state of the economy, storage levels, weather, and alternate fuel prices.

The outlook as of fall 2015 is for natural gas commodity prices to remain steady and lower than last year. In its October "Short-Term Energy Outlook, " the U.S. Energy Information Administration (EIA) said it expects the Henry Hub price will average $2.81 per MMBtu in 2015 and $3.05 per MMBtu in 2016. The 2014 average was $4.39 per MMBtu.

It is projected that the natural gas price bandwidth will stay relatively moderate over the coming years, given the size of the domestic supply resource base.

As noted, short-term volatility reflecting delivery constraints during periods of high demand and cold weather do occur, especially in regional markets. The Northeast region, for instance, remains among the most price-sensitive markets in the country, notably in the winter, reflecting its pipeline constraints. EIA notes that for New England and New York, "Pipeline constraints still exist in the area, and day-to-day price volatility is likely." Spot market volatility is most prone to impact "non-firm" or interruptible customers, such as many power generators in the region, and thus ultimately electric customers.

Natural gas utilities have in place long-term supply and storage arrangements, and their "firm rate" customers, such as residential heating customers, are to a great extent protected from spot market fluctuations. As the U.S. EIA has observed: "Residential customers see less [price] variation because their bills reflect monthly average prices, which do not fluctuate as much as daily prices. Also, many residential customers stabilize their monthly bills by participating in yearly budget plans provided by their local gas distribution companies."

Additional pipeline capacity into the region would help to alleviate constraints and reduce the regional price volatility and basis differential. The New England Governors' current initiative to increase energy infrastructure investments - both natural gas and electric - reflects concerns over energy reliability and economic impacts.

The region's proximity to abundant shale gas resources remains however a positive factor. As the New York State Energy Planning Board observed in its June 2015 "New York State Energy Plan":

"Projected prices reflect continued industry success in tapping the nation's extensive shale gas resources. With its nearness to the Marcellus Shale basin, New York should participate in prices lower than those experienced from 2000 through 2010 and more similar to those of the last few years." [Volume 2, page 122, released June 2015]
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