Factors affecting the prices of Natural gas

    1.      Russia Ukraine war

2.      Middle East Tensions

3.      LNG export constraints in the USA

4.      Natural gas storage levels in USA and Europe

5.      Cooling demand/demand for electricity generation in USA

6.      Prices of Crude Oil

7.      Demand in major markets like China and Europe

8.      Rise of new players

9.      Natural factors like Hurricanes/very cool weather causing supply disruptions

10.   Economic slow down

 

Natural gas is one of the most volatile commodities currently trading in the commodity market, the prices of which are determined by a tug of war between the fundamentals and the ongoing issues. 

We have seen natural gas prices getting pumped to over $10 mark in 2022 due to Russia Ukraine war in a matter of a few weeks and the same prices have plummeted back in 2024 even to see sub $1.5 mark. Thus in 1^st case, it was the war which drove the prices on concerns of supply fear but not that it made any difference afterwards. The prices came back to normal or even below normal due to fundamentals of supply and demand.

 

Now let us look at some of the ongoing concerns one by one:-

 

1.      Russia Ukraine War

 The war has been going on for more than two years now but it is not still a stalemate when it comes to natural gas prices. Recent advances of Ukraine in Russian territories have once again raised concerns of supply disruptions from the Russian side that should affect Europe’s energy security but their effect has been limited due near full European gas storage which are near to its 90% target mark well ahead of its winter target. 

2.      Middle East tensions

Middle east tensions have created a bottleneck out of the Suez Canal with Houthi rebels targeting ships in the Red sea, the shipping companies are forced to take a longer route to Europe. Qatar which is a major in the LNG industry has seen its shipments getting cancelled on account of the troubled waters of Red sea. 

3.      LNG export constraints in USA 

USA is leading exporter of LNG in the world. However, the amount of natural gas produced at USA is far more greater and often the prices in Texas Region go into negative territory on account of over production and not enough LNG conversion and exporting infrastructure. The LNG demand in world is solid but it lacks the necessary infrastructure to convert the natural gas into LNG and the necessary infrastructure to transport LNG. The rising prices of crude oil has caused a surge in natural gas prices with NG coming out along with crude oil. The scheduled maintenance activities and the outages of the LNG exporters like freeport LNG adds to the worries which drive down the Natural gas prices as the supply of the gas remains same but its demand goes down abruptly. 

4. Natural gas storage levels in USA and Europe affected by demand and supply 

Europe was able to exit winter of 2023 with record levels of Natural gas in its storage all thanks to ramped up US LNG supplies and increased supplies from the middle east. The European gas storage at present are near to their target of 90% mark, thus no further demand from the Europe seems to be a worrying sign for natural gas prices which could be a limiting factor for any upward movement.

The working natural gas storage in the US is remaining above its 5 years average and majority of the weeks have seen an injection into the inventory rather than withdrawal. The tepid cooling demand has contributed to rising storage levels and even the last winters have seen less heating demand due to above average temperatures.

5. Prices of crude oil

With rise of crude oil prices in the international market, the shale oil production in the USA has reached to a record high with EIA estimating an average of 13.2 million bpd in 2024. The US has been producing more oil than any other country has ever. But with rising oil productions comes out natural gas which is causes unintended rise in natural gas supply often driving prices in energy rich regions like Texas to fall into negative territory. Thus the relation between the oil and natural gas prices have not been consistent and  are often seen to be showing negative divergence in recent times.

6. Rise in new players

Even with the sanctions crippling Russia’s LNG exports, the supplies to Europe has been well compensated from LNG exports of USAs and Middle East Regions and even African countries boosting their energy infrastructure thus providing Europe with major alternatives of Russian gas preventing any major surge in prices at Dutch TTF. 

7. Economic slow down

With down turn in manufacturing sector across the globe, the rise for natural gas demand has been seeing headwinds. With tightening environmental norms Europe’s manufacturing sector is taking a hit which is adversely affecting the energy demand. The gas driven industries like chemical and fertilisers have suffered a major setback due to price disruptions resulting from the Ukraine crisis. The European industries are yet to recover even when the prices of natural gas has reduced significantly.  Industrial Powerhouse like Germany has even seen periods of negative growth due to demand concerns around the globe.