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What are the major factors affecting natural gas prices?

Natural gas prices are mainly a function of market supply and demand. Because there are limited short-term alternatives to natural gas as a fuel for heating and electricity generation during periods of high heating and cooling demand, changes in natural gas supply or demand over a short period may result in large price changes. Prices themselves often act to balance supply and demand. Increases and decreases in prices tend to reduce or increase supply and demand.

Factors on the supply-side that affect prices include natural gas production, imports, and storage inventory levels. Increases in supply tend to pull prices down, while decreases in supply tend to push prices up. Increases in prices tend to encourage natural gas production and imports from lower priced sources, and sales from natural gas storage inventories. Declining prices tend to have the opposite effects.

Factors on the demand-side include the extent of natural gas consumption infrastructure (including end-use equipment in buildings, natural gas-fired power plants, and liquefied natural gas export facilities), weather (temperatures), economic conditions, petroleum prices, and international demand. Cold weather (low temperatures) increases demand for heating, while hot weather (high temperatures) increases demand for cooling, which increases natural gas demand by electric power plants. Economic conditions influence demand for natural gas, especially by manufacturers. Demand may be moderated by petroleum fuel prices, which may be an economical substitute for natural gas for electric power generators, manufacturers, and large building owners. Higher demand tends to lead to higher prices, while lower demand can lead to lower prices.

Learn more:
Energy Explained: Factors Affecting Natural Gas Prices
Short-Term Energy Outlook, Natural gas
Annual Energy Outlook, Issues in Focus: Effects of Liquefied Natural Gas Exports on the U.S. Natural Gas Market
Natural Gas Weekly Update
Today in Energy articles on natural gas

Last updated: June 7, 2023

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