Everyone is being impacted by the fluctuations in energy costs. Three major reasons this winter might lead to a short-term drop in natural gas prices in North America.
North American (NA) natural gas prices reached all-time highs this year, more than quadrupling from pre-pandemic levels.1. The economy as a whole is affected by these high prices, which have an effect on affordability, electricity prices, and home heating expenditures. The topic of what would affect natural gas prices over the coming year arises as NA approaches winter, when demand for the resource peaks.
The natural gas market is dynamic and complicated, with constant fluctuations and unpredictability in the mix. The United States (US) had five consecutive injections of natural gas into storage at a rate exceeding 100 billion cubic feet (bcf) per week from mid-September to mid-October of this year. For at least a dozen years, this is the longest run of weekly injections over 100 bcf given in the autumn. Because US stockpiles are just 5% below the five-year average, natural gas prices are under pressure to decline.
While a number of factors, including the availability of coal for generation, economic growth, market sentiment, associated gas supply, and policy, may have an immediate impact on natural gas prices, winter temperatures, producer investment, and, to a lesser extent, LNG exports, are likely to have a greater, longer-lasting effect.
Natural gas costs in the foreseeable future are mostly determined by how severe the winter weather is. A mild winter can reduce the demand for natural gas from homes and businesses by up to five bcf per day (bcfd). A harsh winter, on the other hand, can result in a five billion cubic foot per day rise in demand, mostly because space heating requires natural gas. Consequently, prices are influenced (Exhibit 1).
The National Oceanic and Atmospheric Administration (NOAA) predicts that the forthcoming winter in NA will likely be milder than typical, which might result in less demand for natural gas than has historically been the case. The price of natural gas may decline as a result of this decreased demand.
