What Drives the Supply and Demand of Natural Gas?

It’s common knowledge that supply and demand are the biggest drivers of natural gas and electricity pricing. When the demand for natural gas exceeds the supply, prices go up accordingly.

For most consumers, the only real insight they get into the energy market is when they receive their monthly gas bill. However, it’s important for brokers to understand the factors driving these prices.

This will allow you to anticipate future market trends and advise your customers accordingly. Let’s look at some of the fundamental factors that influence both the supply and demand of natural gas.

Understanding Natural Gas Supply

To understand natural gas supply, you have to consider gas storage levels. This is because stored natural gas provides a cushion to meet peak demand.

And during fall and summer, a surplus of natural gas can be sent to these storage facilities. So this natural gas storage can be used to accommodate the rises and falls in market demand.

The supply of natural gas is tracked weekly by the Energy Information Administration (EIA). When the surplus is high, natural gas prices drop. However, when production begins to lag, it doesn’t take much to draw on this surplus and drive prices back up.

These supply cycles are based on seasonal demand. These cycles are commonly known as the shoulder months of spring and autumn or peak demand months of summer and winter.

Understanding the Demand on Natural Gas

Demand for natural gas has been on the rise since 2011, mostly due to its low costs in relation to coal. Coal production is expected to decline by three percent in 2018, which will likely lead to an increased demand for natural gas.

The short-term demand for natural gas is primarily affected by weather. Above or below average temperatures tend to spike a high demand for natural gas. However, the long-term demand for natural gas is driven by these primary sectors:

● Commercial and residential: Both residential and commercial sectors use natural gas for heating and cooling purposes.

● Power generation: Increasingly, coal plants are retiring as power generators continue to benefit from low-cost natural gas.

● Industrial: Industrial demand for natural gas continues to increase. Natural gas is often used to produce fertilizer, chemicals, and hydrogen.

Natural gas is transported through pipeline infrastructure that extends across the country. These networks deliver natural gas to homes and businesses. Areas that don’t produce enough natural gas on their own rely on this infrastructure to import it from other areas.

However, this pipeline construction requires a lot of regulatory compliance and planning. And when there is a lack of infrastructure, this affects the demand for natural gas.

Conclusion

As an energy broker, it’s important to stay on top of any news that can affect energy prices. Broker Online Exchange gives you access to news and trends that impact the energy industry. We also give you access to top energy suppliers across all deregulated markets.