The price of natural gas fluctuates due to various factors that the U.S. Energy Information Administration (EIA) classifies into two categories: supply and demand. Supply refers to the availability of natural gas, which is influenced by factors such as the amount of natural gas produced, the volume stored for future use, and the level of imports and exports. Demand, on the other hand, reflects how much natural gas consumers need or want to purchase, and it is affected by changes in weather patterns, economic growth, and the availability and pricing of alternative fuels.
One of the most impactful demand factors is weather, particularly how extreme temperatures influence the need for natural gas. During particularly cold winters, demand increases as more natural gas is required for heating, which can drive prices higher. For instance, during the 2014 Polar Vortex, New York saw natural gas prices spike from $6 per million British thermal units (mmbtu) to nearly $35/mmbtu. Conversely, warm winters can have the opposite effect. When milder temperatures reduce heating needs, prices often drop. New York has experienced several consecutive warm winters, which have contributed to lower natural gas prices. If the upcoming winter remains mild, prices are likely to stay stable or decrease further.
In summer, weather can also play a significant role. Extremely hot weather increases the use of air conditioning, which is often powered by electricity generated from natural gas. This heightened demand for electricity can lead to price spikes during the summer months as well.
Because weather patterns are inherently unpredictable, natural gas pricing can be difficult to forecast. To protect against unexpected price increases, Power Management often recommends locking in natural gas rates for a 12-month period when prices are favorable. This proactive approach helps businesses manage costs and avoid sudden financial impacts from unpredictable weather, particularly during volatile winter seasons. By understanding the relationship between weather and natural gas pricing, businesses can make more informed decisions about their energy needs!