Access energy professionals are available to provide up to the minute market updates and can shed light into many of the volatile factors that affect natural gas pricing. Natural gas is a highly volatile commodity. Weather, economic events, alternative energy prices and production levels all come together to produce daily changes in the wholesale energy market. As prices rise and fall, your dedicated account manager is prepared to provide you with strategic advice that will allow you to take advantage of market opportunities as they arise.
The Natural Gas Industry
Natural gas prices are mainly a function of supply and demand. A number of uncontrollable factors affect the supply of and demand for natural gas in both the short and long term.
Weather – The most important factor in determining short-term price movement in North America is the weather, and in particular the effect of temperature on the demand for winter heating and summer cooling. Prices tend to follow a seasonal cycle with higher prices in the peak of winter and summer and lower prices in the spring and fall. El Nino events and Hurricanes can also have a significant impact on natural gas prices.
Economic Conditions and the Cost of Alternative Energy Sources – Prevailing economic conditions influence the demand for natural gas, especially by manufacturers and power producers. Higher demand leads to higher prices and lower demand leads to lower prices. Further, increases or decreases in natural gas prices tend to reduce or increase demand, respectively. The pricing of crude oil, coal, electricity and natural gas tends to be inter-related. As the cost of alternatives fluctuate, many large scale energy consumers practice fuel switching, which is a temporary change from one fuel to another to reduce their energy costs. This activity can materially impact the demand for natural gas and create periods of volatility in price.
Storage & Production Levels – Increased production and storage levels tend to pull natural gas prices lower while depressed production and storage levels tend to push natural gas prices higher. High natural gas prices tend to encourage production and storage withdrawals which, over time, will typically lead to lower prices. Low natural gas prices tend to discourage production which, over time, typically leads to a higher price environment.
Foreign exchange – The price of natural gas in Canada is highly correlated and influenced by the US dollar based NYMEX contract price converted into Canadian dollars. A strengthening US dollar (relative to CAD) or a weakening CAD dollar (relative to USD) typically means that Canadians will spend more money on energy. In the US prices are typically quoted in $USD/MMBtu and in Canada prices are typically quoted in $CAD/GJ (note: 1.055056 GJ’s is equal to 1 MMBtu).