What causes the price of natural gas to increase?


Quick Answer

The primary driver of natural gas prices is a spike in demand when available supplies are low. For instance, natural gas use peaks over the winter due to its use as a heating fuel. Weather and refining capacity problems can also lead to short-term increases in natural gas prices.

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Full Answer

While the winter months traditionally showcase the highest natural gas prices, the fuel can also become expensive during the summer. Natural gas is also used to generate electricity and is often used to power extra capacity during periods of high demand on the power grid. An electric utility company buying large stocks of natural gas to keep the lights on can easily put pressure on supplies during the summertime.

The fracking boom in the United States has significantly increased the supply of fuel, keeping prices low in the face of other factors. However, artificially low natural gas prices can cause providers to shut down excess capacity, especially if it drives prices down to a level where profit margins suffer. This will eventually cause the price to rise, but it may dip again when providers begin increasing production.

Over time, natural gas prices can be expected to rise simply because it is a nonrenewable fossil fuel. Supplies of the gas are limited, and as older, easy-to-access deposits are used up, the cost of extraction can only increase.

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