Natural Gas Prices Explained
Updated on September 30, 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?
Prompt-month futures at the Henry Hub for the last two weeks of September were around $9.10 before falling 27 percent to around $6.65 on September 28, their lowest level since mid-July. As of September 29, prompt-month futures at the Henry Hub were trading at around $6.90. Similarly, NYMEX contracts for October 2022 fell $1.35 from $9.11 per MMBtu on September 14 to roughly $7.78 per MMBtu on September 20. The long-term strip experienced similar drops in prices as contracts were settling below $5.00 per MMBtu starting in April 2023.
Delayed start to hurricane season
Hurricane season had a delayed start this year but is now in full swing. The Atlantic basin saw only three named tropical storms through August 31. On September 1, Danielle became the first hurricane of the 2022 Atlantic hurricane season. September saw an additional three hurricanes and two tropical storms form over the Atlantic.
Hurricane Ian deserves a special mention as it became the fifth strongest hurricane on record to make landfall in the contiguous United States when it made landfall on the western coast of Florida on September 28. The storm path initially pointed slightly westward on September 24 and 25, resulting in concern for oil and gas refineries in the Gulf of Mexico. However, most of the rigs were left unaffected.
For the week ending September 24 temperatures were 4.9 percent warmer than the same time last year across the United States, and all regions except for the Pacific were warmer than normal as measured by cooling degree days. NOAA’s GFS ensemble model forecasts more moderate temperatures in the West while the cooler temperatures move North along the East Coast. Although cooler, the East Coast will experience warmer than normal temperatures for the first week of October resulting in light natural gas demand.
PointLogic reports overall U.S. consumption fell by 0.7 Bcf per day as of September 21 compared with the previous week. Natural gas used for both electric generation and in the industrial sector decreased by 0.4 Bcf per day even as consumption increased in the residential and commercial sector by 0.1 Bcf per day as compared to the week ending September 14.
S&P Global anticipates a drop in domestic demand in the Southeast due to widespread power outages throughout Florida in the wake of Hurricane Ian. A further decline in demand could occur if Ian makes second landfall in South Carolina on October 1 as predicted by most models.
Producers brace for Hurricane Ian
Hurricane Ian did not have a direct impact on offshore production. However, the Bureau of Safety and Environmental Enforcement, the agency that regulates offshore production, estimates that natural gas producers lost nearly 9 percent of daily output due to shut-ins in preparation for a potential hurricane hit.
EIA reports dry production averaged 98.9 Bcf per day for the week ending September 21, a 0.6 Bcf per day decrease from the previous week. Although production has decreased week over week, it is still up an average of 4.7 Bcf per day year over year. According to S&P Global, dry gas production remains above 2021 levels in the South and West as production in Haynesville and East Texas has increased 0.8% and 10% year over year, respectively. However, production in the Marcellus and Green River has dropped.
EIA still anticipates an overall increase in domestic dry gas production for October, resulting in an additional 0.09 Bcf per day. On a final note, an unplanned outage to Line 73 of the Texas Eastern System completely shut down daily deliveries of 900 MMcf to the Midwest and Canada on September 21. S&P Global reported Enbridge may restore service at some point between September 30 and October 2.
LNG exports remain strong
LNG exports remain strong despite prompt-month future prices in Asian and European markets dropping to the lowest levels since the third week of July. While U.S. LNG exports remain strong, EIA data shows LNG imports for the first six months of 2022 are at their lowest level in 15 years, averaging 77 MMcf per day (0.08 Bcf) compared to the fiveyear (2017 – 2021) average for the same period of 174 MMcf (0.17 Bcf) per day. As a share of total imports, LNG imports peaked in April of 2007 at 3.3 Bcf per day, accounting for roughly 26% of total natural gas imports, while in 2021 LNG accounted for less than 1% of total imports.
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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