Low temps boost natural gas price as oil turns cold

Low temps boost natural gas price as oil turns cold


The price of natural gas, which swooned just two years ago to the chagrin of drillers and the delight of manufacturers and utilities, is quietly holding steady or even rising amid a high-profile crude oil price slide.

The gains mostly are seasonal – the price typically rallies or retreats along with winter heating demand – but other factors also are helping natural gas dodge the pressures that have knocked more than 25 percent from the price of crude oil since June.

In fact, analysts said, falling crude oil prices could send gas higher. Natural gas often comes from wells drilled to produce oil. Some of this byproduct, called associated gas, is burned off at the wellhead, but some of it also reaches markets.

If oil production falls because of lower prices, the supply of associated gas on the market will shrink, giving natural gas prices a boost.

U.S. natural gas fell below $2 per million British thermal units in 2012, thanks both to a torrent of gas flowing from shale plays and a mild winter. This year gas has rebounded above $4, because of a cold winter and below-normal temperatures so far this fall.

Continued cold weather sent the price up 13 cents to $4.37 in New York Mercantile Exchange trading Wednesday.

Natural gas prices typically represent a volatile mix of production rates, storage inventories and seasonal demand. It’s harder to transport and store than crude oil, which means that some local markets have less flexibility to import gas from other areas or from storage. So prices for gas traded in real-time at various locations can spike quickly in a cold snap.

The futures market, in which buyers and sellers trade contracts for gas sales at later dates, may reflect these moves, but generally its prices aren’t as volatile in response to specific events. The benchmark U.S. natural gas price is a contract for delivery the following month at the Henry Hub pipeline and storage complex in Louisiana.

At the most basic level, though, the natural gas market hasn’t changed much since technological advances opened up a surge of production from shale rock a little more than five years ago.

“The story about the gas market for the past number of years has been excess supply and tremendous production,” said Pearce Hammond, a managing director at energy investment bank Simmons & Co. International.

Nationwide, annual natural gas production jumped to 24.3 trillion cubic feet in 2013 from 18.1 trillion cubic feet in 2005, according to the U.S. Energy Information Administration.

The growth in production has been led by the Marcellus Shale region in Pennsylvania and West Virginia. There, producers focusing mostly on gas have driven production from 2 billion cubic feet per day in 2010 to close to 16 billion cubic feet per day now, according to government data.

The resulting flow of gas has kept prices low and enabled industries to reap the benefits of cheap energy.

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