Natural Gas Prices Explained

Updated on July 15, 2022

The price of natural gas is determined by numerous market factors such as supply and demand, weather, imports and exports, underground storage levels, and natural gas production.

With analysis from AGA's Energy Markets and Analysis team, we are looking at recent market activity to better understand why the cost of natural gas is what it is today. You can go deeper into each of these factors in the latest Natural Gas Market Indicators report.

How much is the price of natural gas?

On July 12, Henry Hub spot prices closed at $6.81, which is $1.09 more than at the same time one week before.

Prompt-month future prices have climbed steadily over the first two weeks of of July. On July 1, prompt-month futures were trading at $5.72. By July 14, prices hit $6.67 per MMBtu, a 16 percent increase. However, prices remain 22 percent lower than immediately prior to the Freeport facility explosion.

Natural gas has been trading at a substantial premium outside of the Henry Hub, particularly east of the Mississippi. Transco Zone 5, for instance, averaged $8.89 per MMbtu over the second week of July, a $2.77 per MMbtu average premium, and $2.16 per MMBtu greater than the average for June. 

In other markets, Northern Appalacian coal closed at $141.30 per ton on July 8, WTI crude closed at $96.30 on July 13, and the AAA average gasoline price is $4.605 as of July 14.

It's really hot.

Blazing temperatures across the country pushed cooling demand during the recent week.

For the most recently reported week ending July 9, temperatures were 8.2 percent warmer than 2021 and 14.5 percent warmer than normal by measure of cooling degree days (CDDs). Every region except the Pacific posted double-digit percentage increases above normal.

Heat in the southern part of the U.S. pushed the CDD count in the West South Central (Texas, Lousiana, Oklahoma, Arkansas) nearly 33 percent above normal, a remarkable outcome given how typically hot it is already this time of year.

The East South Central region posted nearly 31 percent above-normal CDDs. 

Only one week out of the last 10 weeks has been cooler than the 1991-2020 normal, according to data from the National Oceanic and Atmospheric Administration (NOAA). Cumulatively, the country as a whole from May 1 to July 9 posted 22.5 percent more (warmer) CDDs.

U.S. domestic natural gas demand remains higher than average.

Natural gas demand for power generation hit 47.2 Bcf on July 12, a scant 0.85 Bcf (1.8%) below the record 48.1 Bcf set on July 27, 2020, according to data from S&P Commodity Insights. 

The current strength in domestic power burn is remarkable given that natural gas futures on the same day in 2020 were $1.71 per MMBtu compared with $6.16 this year.

Southeast power burns peaked at 15.7 Bcf per day on July 7 and averaged 14.6 Bcf per day in July, which is 2.8 Bcf per day higher than the five-year average.

Hot weather across the country has driven strong demand, which peaked at nearly 100 Bcf on July 13, with nearly half of that demand going to power burn. Over the second week of July, average demand was 96.3 Bcf per day.

S&P Global estimates that demand will continue to grow through the end of July, averaging 96.6 Bcf per day and 98.5 Bcf per day over the third and fourth weeks of July, respectively.

Dry gas production is on track for an all-time record.

Dry gas production has remained largely flat from July 1, averaging 94.6 Bcf per day, which is virtually unchanged from the month prior. However, the second week of July is closing production about 1 Bcf per day lower than earlier in the week, a decline that is driven in part by planned maintenance in the Northeast.

S&P Global projects dry gas production to ramp up to around 94.4 Bcf per day over the second half of July as temporarily closed facilities come back online. Should S&P’s projections come to pass, July 2022 will likely set an all time record for July dry gas production.

Imports, exports and LNG

In recent weeks, there has been a lot of focus on liquefied natural gas (LNG) exports and the global market amid the ongoing war in Ukraine. While the war has significantly impacted European natural gas prices, North America's pricing trends have been shaped by other drivers.

Natural gas imports from Canada in June are stronger than any time in the past four years, averaging 5.5 Bcf per day month to date, up 20 percent from the same period in 2021. Exports to Mexico, on the other hand, averaged 6.3 Bcf per day, a seven percent decrease compared to the same month in 2021. 

LNG production for the first half of July stabilized at 11.6 Bcf per day, 0.6 Bcf per day less than in 2021. The fire at the Freeport LNG facility we have previously reported on reduced LNG export capacity by about 2 Bcf per day. As a result, current exports continue to represent almost all available U.S. export capacity.

In the wake of the Freeport fire, EIA also updated its U.S. LNG export forecast downward by about eight percent per day through the end of the year. The fire combined with high demand for cooling in Western Europe has likely resulted in the high prices for LNG in European markets. On July 14, prompt-month future prices at the Dutch TTF hovered at around $53.6 per MMBtu, more than double the $26.1 per MMBtu natural gas was seeking at the TTF immediately prior to the explosion.

Underground storage levels are lower than the five-year average.

While the EIA's latest weekly natural gas storage reports show a net injection of 76 Bcf into storage, stocks are 367 Bcf lower than 2021 levels and 312 Bcf lower than the five-year average. However, the pace of injections has increased, and levels are still within the five-year average range. The 76 Bcf net injection was 6 Bcf higher than the net injection over the same week in 2021.

What do higher prices mean for consumers?

As a result of higher commodity prices and increased demand due to weather changes, natural gas customers may see increases in their monthly utility bills. There are a number of different options available to customers to help mitigate the impact of a higher gas bill.

If you are concerned about being able to pay your bill, contact your utility to get more information about what options are available to you.

Go deeper into each of these market factors in the latest Natural Gas Market Indicators report.


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