Wednesday, January 29, 2014

US Natural Gas Prices Impacted by Extreme Cold

U.S. natural gas prices have been soaring recently, up to about $5.50 per 1,000 cubic feet, the highest level since February 2010, and compared to about $4.00 around this time last year. Cold weather has taken a huge hit on natural gas storage, and according to Reuters, natural gas storage is expected to fall to the lowest level in six years due to the extreme cold weather experienced by much of the nation. The cold resulted in the largest ever weekly natural gas storage withdrawal for the week ending December 13 and the extreme cold disrupted production in several shale basins (EIA).

So while many in Ohio are braving the frigid temperatures and paying a higher price to heat their homes, others, including Ohio tax authorities and many land owners in the heart of the producing wells, will be collecting a bit extra due to the recent natural gas price spike.

The April to October season, the time when natural gas stockpiles are replenished, will have a larger hole to fill to return levels back to average storage seen in recent years. The increase in natural gas prices should encourage a corresponding increase in production and storage replacement, and prices should then fall, at least somewhat.

This winter we are all reminded of how large a role that the weather plays in driving natural gas prices. For the sake of the average consumer, let's hope that prices come down, at least somewhat.