Are Natural Gas Prices Poised to Rise?

Natural gas prices could increase and remain volatile due to surging demand and lingering effects from the brutally cold winter, according to recent news reports.

The Motley Fool reports that natural gas demand is increasing rapidly, and suppliers could get caught shorthanded. “With natural gas inventories plunging to 11-year lows last week, the market needs to start including the demand side in the equation,” the article states. “The biggest mistake most make is assuming that abundant supplies in the ground will turn into production by [natural gas producers].” The article went on to state that, “The demand side is regularly ignored, and without a balance, the market
will face the same volatile prices as it has in the past.”

The Motley Fool noted U.S. Energy Information Administration data showing that gas consumption over the last five years has soared, with total consumption rising by almost 14 percent from 2009 to 2013, largely due to industries and power companies switching from coal to natural gas. Manufacturing facilities like a new Nucor plant in Mississippi are also driving demand increases. Nucor manufactures steel and uses as much natural gas as the entire island of Manhattan, according to the article.

A combination of reduced natural gas production and increased usage “could lead to supply disruptions and higher natural gas prices down the road, especially with inventories already very tight,” the article states.

The Wall Street Journal also weighed in on the prospect of rising natural gas prices, noting that severely diminished natural gas inventories might not recover in time for next winter. The latest decline in natural gas inventories was “unusually large for late March,” the article stated. “The drop heightened concerns that gas prices remain too low to convince producers to pump out enough gas this spring and summer to refill storage.”

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