Frequently Asked Questions

What are the major factors affecting natural gas prices?

Natural gas prices are mainly a function of market supply and demand. Because there are limited short term alternatives to natural gas as a heating fuel and as a fuel for electricity generators during peak demand periods, changes in supply or demand over a short period may result in large price changes. Prices themselves often act to balance supply and demand.

Factors on the supply side that affect prices include natural gas production, net imports, and underground storage levels. Increases in supply tend to pull prices down, while decreases in supply tend to push prices up. Increases in prices tend to encourage production and imports and sales from storage inventories, and declining prices tend to have the opposite effects.

Factors on the demand side include economic conditions, winter and summer weather, and petroleum prices. (Petroleum fuels may be an economical substitute for natural gas for manufacturers, power generators, and large building owners.) Higher demand tends to lead to higher prices, while lower demand can lead to lower prices. Increases and decreases in prices tend to reduce or increase demand.

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Last reviewed: April 10, 2012