Will the Upward Trend in Prices be Sustained?

By Casey Whelan | September 23, 2013

Sept. 3—Natural Gas prices are 55 percent lower than five years ago and the market price today, roughly $3.60 per MMBtu, feels like a bargain. Looking at a shorter timeline shows gas prices are now 29 percent higher than one year ago. As the chart shows, the market was under $3 per MMBtu one year ago and now rests above $3.50 per MMBtu. Market prices moved above $4.40 per MMBtu at the end of winter as storage inventories were drawn down due to the long and cold winter experienced over most of the nation. Moving through the summer, strong production pushed inventories back to comfortable levels, softening market prices. However, prices are still well above levels compared to one year ago. If the current trend continues, the market will move above $4 per MMBtu and may stay there on a sustained basis. 

The futures market seems to confirm that higher prices may occur. For example, the January 2014 price approaches $4 per MMBtu while the January 2015 price is 8 percent higher at $4.27 per MMBtu. From a producer perspective, market prices above $4 per MMBtu encourage more aggressive pursuit of incremental supply, which is necessary to maintain a healthy supply, demand balance. While no consumer likes higher prices, it may create a degree of price stability. The key is to have a sufficiently high price to encourage development and incremental supply but not so high that economic activity is impacted.