What Affects Natural Gas Prices?


Quick Answer

The laws of supply and demand affect the price of natural gas. There are few available short-term alternatives to the product for purposes such as heating and the generation of electricity. Accordingly, when the supply of natural gas goes down, the demand increases, forcing prices to rise.

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Full Answer

Some of the factors that affect the prices of natural gas on the supply side include underground storage levels, net imports and the production rate of the gas. When the supply of natural gas increases due to changes in any of the factors on the supply side, the demand for natural gas decreases and the prices fall. A further decline of the prices reverses the process in that it exerts pressure on the supply.

Some of the factors on the side of demand include changes in economic conditions, weather aspects such as extremely high and low temperatures, and the prices of petroleum. Low temperatures trigger an increase in the demand for heating while high temperatures increase the demand for cooling. Natural gas is one of the primary products used for the production of electric power for heating and cooling. Accordingly, extreme temperatures force the demand up and with it the price of natural gas.

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