How Weather Impacts Natural Gas Pricing
Like most commodities, the price of natural gas -- and the variability of that price day-to-day -- is determined by supply and demand. So what impacts demand of natural gas?
First, let’s make sure you know what natural gas is.
Not to be confused with the unleaded fuel and diesel you put in your car, natural gas is a fossil energy source consisting mostly of methane that occurs in the tiny pores within some formations of shale, sandstone, and other types of sedimentary rock. It may also occur in coal deposits, or with crude oil deposits, and can be found offshore and deep under the ocean floor.
It is used as a source of energy for heating, cooking, and electricity generation. It can also be used to power vehicles equipped to run on compressed natural gas (CNG), and as a chemical feedstock in manufacturing plastics and other important organic chemicals.
The demand of natural gas can be impacted by a variety of factors.
1. Extreme weather patterns in both summer and winter.
Whether it’s a “polar vortex” creeping south in the winter time, or a record-breaking heat wave in the summer time, abnormal weather patterns can drastically impact the pricing of energy. When residents and companies have to crank up the heat, the market has to crank up the price of natural gas. Supply can be stressed during these times -- especially if the seasonal weather forecasts were wildly inaccurate. But once the temperatures level out and the thermostats get turned back down, prices of natural gas tend to level out, too.
The “polar vortex” of 2014 famously exposed weakness in the infrastructure that made placed a nearly-impossible amount of pressure on existing natural gas pipelines.
Read how meteorologists help set energy pricing
2. Demand and pricing.
You can assume that if the economy grows, so, too, will the price of natural gas. That’s because a strong economy encourages more demand for everything. People are spending money, purchasing goods and services, and in turn, causing businesses to use more energy. If the economy is in a downturn, the demand for resources goes down (and traditionally, so does the price of natural gas).
3. Availability and prices of other fuel and energy sources.
Energy companies and industrial plants look to leverage the cheapest natural fuel source. And because oil, natural gas, and coal fuel markets are mostly related, energy companies can shift their usage. And when they favor one, the prices of the others tends to go down (because when demand falls, so does price).
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In states that are deregulated, residents and businesses can choose who supplies their natural gas. And because suppliers -- like IGS Energy -- buy energy ahead of time on your behalf, they’re able to offer specialized products that make your energy bills more consistent and predictable.