Natural gas is a publicly traded commodity and, like other fuels, such as gasoline, oil, and propane, its price has been escalating.The price of natural gas is influenced by the market forces of supply and demand. There are multiple factors that influence supply and demand and determine the wholesale price of natural gas.
Supply
The supply of natural gas is affected by production, storage and other factors.
- Production
Natural gas production, which is primarily in the United States and Canada, has grown but has not kept pace with rising demand. This has resulted in dramatic fluctuations and rising prices since 2000. - Storage
Storage levels (the amount of natural gas kept underground or in above-ground storage containers) are sufficient for the upcoming heating season and above average. - Other
Events like hurricanes, record-setting crude oil prices, infrastructure problems, etc. can affect the ability to produce and transport natural gas. In 2005 Hurricane Katrina affected production in the Gulf, where about 20% of U.S. production occurs. The 2006 and 2007 hurricane seasons did not disrupt production levels.
Demand
Factors such as weather and the economy affect demand for natural gas.
- Weather
National weather has the greatest impact on natural gas prices. When winter temperatures are colder than normal, demand is higher and, usually causes an increase in natural gas prices. Conversely, warmer winter weather often means lower prices. Prices are affected by weather in Minnesota and by weather in large population centers, especially in the eastern U.S. where usage is especially high in the winter months. Weather also has the greatest impact on customer bill amounts because it determines how much gas they use each month: The colder the weather, the greater the usage. - Economy
Growth in the nation’s economy has driven demand for natural gas. In addition, new residential and commercial growth, new uses of natural gas by industrial companies, electric generation, which creates demand in the summer, and record-setting crude oil prices have all affected demand for natural gas.
