With the world looking to source more renewable energy, and leave things like oil and coal behind, natural gas is one such source that is emerging as a good source of electricity for a number of reasons. It releases less carbon compared to other fossil fuels and the infrastructure around gas plants is much quicker and easier.
It is also for this reason that the US, especially, has taken it upon itself to drive a lot of investment and effort into producing natural gas. This has also seen the reliance on natural gas in the US being ramped up. This resource has now made its way into the commodities market because of its importance in the future with regards to renewable energy, as well as the added reliance.
Natural Gas Prices Forecast: for 2020 and beyond
With regards to the natural gas price price forecast, this market is an interesting one as the resource is in a state of flux in terms of its production, and the markets are also facing tough times amid the Covid-19 pandemic gripping the globe and toppling almost all markets.
The natural gas price forecast today, and the natural gas price forecast for the next six months are expected to be very different as market issues play themselves out. Then, the gas price predictions next 5 years will also be interesting to watch because of the way in which the resource is being produced and handled.
Currently, the gas price has been on a downward trajectory over the last year. 12 months ago, the price of gas was at $2.85 per MMBtu but it currently finds itself at $1.77 per MMBtu. The reason for the movement in the gas price has to do with around seven different aspects.
Weather, demographics, economic growth, price increases and poverty, fuel consumption, storage and exports all affect the future gas prices predictions and how the price will move. Some of these factors are quite obvious — such as colder weather meaning more natural gas usage for heating. Temperature also comes into play when looking at the demographics as there is a tendency for US residents to move to warmer areas meaning less demand.
The gas price forecast is also moved by market conditions, such as economic growth and slow down that can make the price rise and fall. The compounding effect of this is that the rising price of gas can also make people move away from the fuel source which leads to added supply and less demand.
Natural Gas Prices Historical Overview
Since the 1930s, in the USA, there has been an upramping of the production of Natural gas to meet the growing needs of an expanding population.The peak of production of natural gas came in around 1975, but in terms of its market price, natural gas prices only started to climb once production eased off from it’s all time high.
By 1975, nearly half the marketed gas in the US was sold to the intrastate market, resulting in shortages during 1976 and 1977 in the Midwest that caused factories and schools to close temporarily for lack of natural gas.
It is these falls in supply that have set the trend for the natural gas prices forecast most recently with supply interruptions causing spikes in price since 1990. Historically, this has helped boost the price, but in the modern era, the price of gas has been falling, partly because of new technology and added supply.
The new technologies of hydraulic fracturing and horizontal drilling have increased these estimates of recoverable reserves to many hundreds of trillion cubic feet, meaning that there is less fear of running out. And, it is this hydraulic fracking that has reduced the spot price of natural gas considerably since 2008.
As a form of fossil fuel, and the fact that it is not finite, the movements of supply and demand have a big influence in the price of Natural Gas. The historical overview shows that from 2000 to 2009, there were a number of disruptions in supply and fears of running out, but shale gas has emerged, through new mining technologies, to allay fears of running out for the next 100 years.
Current Natural Gas Prices
Currently, the price of Natural Gas is relatively low — in fact, it is not far off the price it was 25 years ago having spiked in value before the emergence of new mining techniques and the shale gas boom. In the last six months, the price of Gas has fallen to $1.88 MMBtu, having tipped a high of $2.88 MMBtu.
This price has dropped by about $0.10 since February as the threat of the Covid-19 pandemic looms over the market. However, its effect has not been as drastic as on other markets. Reasons for the low price going back to February before the outbreak impacted markets include warmer than usual temperatures over the middle of winter.
The EIA forecasts that prices will begin to rise in the second quarter of 2020 as US natural gas production declines and natural gas use for power generation increases the demand for natural gas. More so, the EIA expects prices to average $2.22/MMBtu in the third quarter of 2020, it also forecasts that Henry Hub natural gas spot prices will average $2.11/MMBtu over the entirety of 2020.
Top factors that affect natural gas prices
Some of the more external factors that influence the natural gas price predictions include Weather, demographics, economic growth, price increases and poverty, fuel consumption, storage and exports. However, it is also important to look at factors that impact the supply side of the price forecast, as well as the demand side of the forecast.
Three major supply-side factors affect prices:
- Amount of natural gas production
- Level of natural gas in storage
- Volumes of natural gas imports and exports
Three major demand-side factors affect prices:
- Variations in winter and summer weather
- Level of economic growth
- Availability and prices of other fuels
The production of Natural gas, and thus the supply of it, has a huge part to play in determining the price of Natural Gas in the markets. By increasing supply beyond the needs or the factors like cold weather, there will be a surplus which will push the prices lower. This has been noted by the increased supply thanks to new drilling and mining techniques and the shale energy movement.
More so, when the natural gas stores are low, and there is difficulty in procuring new gas deposits, then there is often fear that comes into the market about reduced supply and therefore an increase in price is forecast. Again, when the shale gas movement came about in the USA, there was a prediction that these deposits would not run out for another 100 years, meaning constant supply and a lowering of price.
On the demand side of things, Natural gas is used primarily as a fuel for heating houses. Thus, the demand for such gas is quite seasonal, and can rise and fall dependent on the severity of a winter.
More so, because gas is linked to prosperity of people, its demand can increase when there is better economic performance in the markets. Economic growth allows for more people to have access to gas, and to be more demanding of it, which also pushes the price up.
On top of this, gas is one resource people can use for heating and other means, but because there are alternatives, if the price of gas moves to be too expensive due to high demand, people can move to other fuels and thus lower the demand, and the price.
Natural Gas Price forecast for 2020
While 2020 looks set to be a troubling time for most markets and commodities, the gas price prediction for the coming year will probably not be as badly hit as others. Natural gas is certainly affected by economic growth, but its price fluctuates more on demand and supply throughout the year.
Gas production has been on a tear away recently with 2019 setting a record for gas production as it averaged 92.2 billion cubic feet per day (Bcf/d). The production for 2020 is however predicted to fall somewhat, but only after rising to 95.3 Bcf/d. The fall will be towards December, but the supply will likely stay at the 2019 high, indicating a 3 percent increase.
Part of the reason for increased supply is news that the group behind Nord Stream 2 says it aims to complete a pipeline to boost Russian gas supplies to Europe as soon as possible.
This increase in production will be in order to match demand which could well rise even further as the word goes on lockdown under threat of the Covid-19 outbreak. Self isolation may mean more households expanding gas and for this reason there is a price prediction of an average of $2.33 MMBtu for 2020. This is even expected to climb into 2021 to $2.54 MMBtu.
This price gain over the next two years that is being predicted could be a turning point as the spot price of Gas has been in decline since 2018 despite rising production.
The increase in price of Natural gas may only come later in the year, partly because of the Covid-19 outbreak and its effect on the markets, but also because of the low inventory withdrawals from warmer weather.
“In January, the Henry Hub natural gas spot price averaged $2.02/MMBtu, as warm weather contributed to below-average inventory withdrawals and put downward pressure on natural gas prices,” EIA said.
“Warmer-than-normal temperatures helped send natural gas front-month futures prices to their lowest level in many years,” EIA added. “Typically, January natural gas prices are among the highest of the year.”
Based on National Oceanic and Atmospheric Administration data, EIA estimates that heating degree days (HDD) in January were 18% lower than the 2010-2019 average.
Future Gas Prices Predictions
Gas price prediction can be rather difficult, but in the long run, the factors that push its price are quite clear and obvious. It is a sustainable fuel, and thus has an important role to play in the long term, and thus its demand will only get bigger. However, it is also a resource that is becoming easier to acquire thanks to new technologies and mining methods — so supply is also on the rise. It becomes about balancing the supply and the demand, but the good thing is demand is rapidly rising. China accounts for more than 40 percent of growth in international natural gas demand, as it looks to move away from coal.
Experts are also predicting big growth in use from other Asian countries such as India, Pakistan and Bangladesh, where the industrial sector serves as the main growth driver. The use of natural gas is expected to grow at an annual rate of 3 per cent, accounting for half of global consumption.
Gas Price Predictions for next 5 years (until 2025)
The biggest river that will influence the gas price, especially in an upward direction, is the drive to make this fuel the largest primary energy source on the planet. It is a fuel that is greener than its other fossil fuel compatriots, and the production infrastructure is robust enough for it to become a key global fuel.
Many expect gas to become the largest primary energy source by 2034. It will also be the last of the fossil fuels to experience peak demand, which is being predicted for 2035. But, because it can operate alongside the growing uses of sustainable energy, the next five years is sure to see steady growth in its demand.
Another factor that needs to be considered, that suits this gas prediction, isa factor that many market analysts look at: gas in storage compared to five-year average. Looking at this put onto a graph over time, we can see that the volume of gas in storage divided by monthly production since 2000 is actually dipping meaning the supply may not be as robust as many think — despite the increase in production.
Dwayne Purvis, an engineering and management consultant based in Texas, explains that the gas price may be ready for a massive spike in the next five years.
“The standard frame of reference —five year range of storage—has been deformed by the extreme demands of 2014’s “polar vortex” and the chronic gas shortage, obscuring reality. For a better frame of reference, the chart below shows nearly 20 years of volumes in storage normalized to dry gas production.”
“It shows how for the better part of the last three years storage trended down as demand chronically exceeded supply. In a longer time frame, normalized storage volumes have trended downward for nearly 10 years as storage did not expand with production. These overlapping trends caused last heating season to end with only 12 days of supply in storage.”
Natural Gas Price Predictions for next 10 years (until 2030)
Much like the five year prediction of the Natural gas price, the next 10 years are set to see prices steadily ride due to demand for energy, as well as demand for cleaner fossil fuels. In fact, going as long as 10 years,the prediction of a three percent price rise on average still stands as many market analysts agree on this figure.
For long term predictions on an asset like this, it is very much about how the world can meet rising demand with rising supply, and how the market can move and adjust to these rising models. Demand for gas will rise, and there is little doubt about that, but the production and supply of gas needs to match it, and not over run it, for the price of gas to keep rising with demand.
The only other factors that can have a role on the gas price in the long term is the incoming supply from US Shale gas deposits which have recently come to the fore and added a lot of supply to the market, dulling the prices somewhat.
McKinsey, in their North American Gas Outlook to 2030, have noted how shale may dip the price a little:
“Based on these anticipated supply and demand drivers, we expect to see North American gas prices remain stable in the medium term. However, as supply from shale resources, particularly from associated gas, continues to grow, prices should decline slightly, to roughly $2.50 per million British thermal units, and remain at that point for the long term. At these prices, we anticipate that North America will be able to meet 25-plus years of demand.”
Are natural gas prices expected to go up or down?
In general, natural gas prices are expected to rise by about three percent per annum based on growing demand, but offset by growing supply and the injection of Shale gas energy.
What time is the natural gas inventory report?
The report is generally updated and available every Thursday at 10:30 am EST
Should I lock in my natural gas rate?
Because natural gas is considered a longer term investment based on its steady gaining in price, in general, it is better to lock into a fixed price contract.
What is a good price per therm for natural gas?
It is dependent on a number of factors, but in May of 2018, when the price of gas was about $1 dollar more than it is today, the best fixed rate available was 39.9 cents per therm.
Do natural gas prices go up in winter?
Yes, because natural gas is used for heating and cooking, it is at its highest demand in January and the winter months so the price of gas is usually at its highest at the beginning of the year.
Summary: What is the future of the natural gas
The future of natural gas as a resource and a commodity is good. The usage of this fue is only getting bigger as it suits a better expectation for what is required from the world of fossil fuels as it is greener, and even more sustainable.
The production of natural gas is also being ramped up in response to a predicted demand for the fuel, but this production comes in waves as the growth of shale fuel, for example, has bolstered supply and dulled demand which has lowered the price — but this has also helped make natural gas more available and usable for new industries.
The price of natural gas is mostly agreed to grow by three percent each year, and this could increase rapidly as traditional fossil fuels are left behind. Currently, the price of natural gas is quite low, which means a sudden rally could be expected this year, and it would be a good time to invest in the long run.
PrimeXBT, a multi-commodity trading platform has quick and easy sign up that allows investors to begin trading in Natural in a matter of minutes — sign up here.
The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.