Natural gas prices rising for first time in years

Natural gas prices rising for first time in years

Natural gas prices are rising for the first time in years, as a colder-than-average winter remains in the forecast and energy companies are withdrawing more natural gas from storage.

Analysts expect that natural gas spot prices will average $3.55 per million British thermal units in 2017 and $3.73 in 2018, up from 2.51 in 2016. If the colder winter forecast holds, it would be the first rise in average natural gas prices since 2014.

Natural gas prices in 2016 were the lowest they had been since 1999, after a mild winter left an excess of natural gas in storage. But those supplies began to slip after a hot summer in which electricity demand to run air conditioners was high, increasing consumption of natural gas by power generators.

With a cold start to the winter in much of the United States, demand is growing, storage levels are dropping and prices are rising. Last week, withdrawals of natural gas from storage in the U.S. topped five-year averages, analysts for the Energy Department found.

Storage is “where supply and demand kind of meet,” said Tim Hess, who manages the Short-Term Energy Outlook for the U.S. Energy Information Administration. “If there is excess in the market, it will go into storage. If there is more demand than supply, then storage levels drop.”

Part of the natural gas surplus was the result of hydraulic fracturing and drilling technologies that unlocked previously inaccessible natural gas reservoirs from shale formations. The abundant supplies that came on the market also helped drive prices down.

For customers, plunging prices meant lower electricity bills, and lower prices drove some energy companies to switch some coal-fired power plants to natural gas.

Such changes have added to the demand natural gas. As natural gas prices rise, electricity rates may follow.

While January started off warmer than analysts expected, if the winter forecast holds, the country should see more withdrawals of natural gas from storage in 2017. For the past three weeks, net withdrawals of natural gas have been more than 200 billion cubic feet, more than the five-year average of 170 billion cubic feet. Initially, the biggest withdrawals were in the South, including Texas, but the region has since returned to average withdrawal levels, said Hess.

But the future of natural gas prices – and whether they will continue to go up – depends on the weather.

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