With cold weather firmly in the rear-view mirror, natural gas prices are falling as we enter a period of low demand. This is an opportune time to replenish natural gas storage facilities in preparation for next winter, and that’s exactly what’s been happening. A recent substantial injection of 123 billion cubic feet into U.S. storage facilities means there is now nearly 10% more gas being stored compared with the same time last year, which has caused prices to fall.
Based on current forecasts, it’s believed that enough gas will be drilled this summer to replenish storage facilities across North America. Strong production and reduced demand have led to an increase of gas flowing into storage, and consequently lower gas prices.
The level of natural gas in underground storage fields has a large influence on supply and prices, according to the Energy Information Administration (EIA). Storage helps to meet seasonal and sudden increases in demand, which domestic production and imports might not otherwise meet. Storage also supports pipeline operations and trading hub services. Levels of natural gas in storage typically increase from April through October, when overall demand for natural gas is lower. Levels of natural gas in storage usually decrease from November through March, when demand for natural gas is generally high.
Due to pipeline constraints at the Empress point in Alberta, there is a surplus of gas stockpiling that can’t reach other markets. This has caused Alberta AECO gas prices to fall much faster than at other delivery points. In April, the settled gas price was just three cents per cubic metre and prices are expected to remain low for the summer months.
On top of supply and demand, the strength of the economy also influences natural gas markets and prices. During periods of economic growth, increases in demand for goods and services from the commercial and industrial sectors can increase natural gas consumption. Economic-related increases in consumption can be particularly strong in the industrial sector, which uses natural gas as a fuel and for making numerous products such as fertilizer and pharmaceuticals.
Firms using Canada natural gas need to find effective ways to deal with price fluctuations in the market. Energy management companies can provide in-depth reviews of natural gas usage, taking supply-demand issues into account. As prices are often volatile, a hedging strategy can be useful, as it spreads out risk more efficiently than a single supply purchase plan.