Natural gas plays an important role in meeting energy needs in the United States. The price of natural gas fluctuates up and down due to the market forces of supply and demand.
It is important for energy brokers to stay on top of changing market trends and issue that affect natural gas and energy pricing. Doing so will help you identify unique opportunities for your clients and help them lock in the best rates.
Let’s look more closely at three factors driving natural gas prices in the U.S.:
The weather has a big influence on natural gas prices. During colder months, commercial and residential demand for natural gas increases. This causes prices to rise. Unexpected cold weather intensifies these effects because of the short-term demand increases.
Likewise, the hot summer months can affect natural gas prices as well. When the weather is unusually warm, the demand for air conditioning increases. Roughly 30 percent of electricity is powered by natural gas. So when the demand for air conditioning goes up, natural gas prices begin to rise.
And extreme weather conditions can affect the supply of natural gas. For instance, the 2005 hurricanes along the Gulf Coast caused many natural gas companies to shut down operations for almost a year. As a result, the country lost 4 percent of its natural gas production during the time frame.
Supply of natural gas
One of the biggest factors impacting the price of natural gas is the supply. In particular, these factors have an impact on price:
- Natural gas production
- Amount of natural gas in storage
Even minor changes in the supply and demand of natural gas can have a big impact on prices. Increases in supply cause the price to go down whereas a decrease in supply causes the price to go up.
The level of natural gas in storage plays a role in price as well. Unlike electricity, natural gas can be stored. Natural gas tends to be stored during low usage months and withdrawn during high usage months.
The goal of this is to provide a buffer on pricing. However, if an event triggers a short-term disruption in the supply of natural gas and there aren’t sufficient reserves to meet the demand during months of peak usage, the prices go up.
The level of economic growth
The level of economic growth and natural gas prices tend to go hand-in-hand. As the economy grows stronger, the demand for natural gas increases. A number of industries, like pharmaceutical companies and industrial companies, rely on natural gas.
As the demand for gas rises, companies, in turn, raise their prices. On the flip side, when the economy is down, the demand for natural gas will go down and prices go down as well.
For example, during the economic recession in 2008, natural gas consumption fell by over seven percent.
When you partner with Broker Online Exchange, not only will you have access to the latest trends in the energy industry, you’ll have access to more deregulated markets and suppliers. Contact us today to learn more about how BOX can help you grow your commercial broker business.