As the new year begins, homeowners relying on natural gas to heat their homes may face higher-than-expected bills following a significant jump in natural gas futures prices. This week, prices saw their largest single-day increase in three years, a trend that experts warn is unlikely to reverse in the near future due to continued cold weather across the Northeast and Midwest.
Tom Seng, a professor of energy finance at Texas Christian University, highlighted that natural gas prices are heavily influenced by weather patterns. “Natural gas, really and truly, is driven by weather more than anything else,” Seng explained. “If this becomes a deep-seated, widespread, long-duration cold front, we’re going to burn a lot of natural gas, which means we’re going to pull a lot of natural gas out of storage.” The combination of high demand and low supply is a key factor driving prices higher.
Unpredictable cold weather, along with geopolitical instability, contributes to the market’s volatility. Grant Wach, a professor of geology at Dalhousie University in Halifax, Canada, pointed out that ongoing conflicts, such as the war in Ukraine and tensions in the Middle East and the Baltics, are further complicating the energy market. “All that uncertainty makes people nervous,” Wach said. “People could just be hedging in the next few months to see what happens.”
The basic economic principle of supply and demand suggests that increasing supply can stabilize prices. However, ramping up supply takes time. Randy Albert, head of Shale Advisory Group, noted that it can take up to 18 months to bring a new gas well online. “When President-elect Trump says, well, we’ll just ‘drill, baby, drill,’ that’s great,” Albert said. “But we don’t have enough takeaway capacity to get at the market.” The infrastructure required to transport natural gas from production sites to consumers is insufficient, and the current administration has shown reluctance to expand fossil fuel extraction efforts.
Despite long-term forecasts predicting a mild winter across most of the country, which could result in a drop in prices once the cold spell passes, Wach remains cautious about the future. He warned of potential price spikes during the summer months when natural gas will be in high demand for electricity generation to power air conditioners during extreme heat waves.
As natural gas prices continue to fluctuate due to a combination of weather-related demand and global geopolitical factors, consumers may need to prepare for a season of uncertainty in both energy costs and availability.
Related topic:
How To Invest In Natural Gas Futures?
