Today, let's talk about the factors that influence natural gas pricing. It should be noted that natural gas is traded all over the world. Here are just a few of the major exchanges:
- New York Mercantile Exchange (NYMEX);
- Intercontinental Exchange (ICE);
- European Energy Exchange (EEX);
- Tokyo Commodity Exchange (TOCOM);
- Shanghai Futures Exchange (SHFE);
- Multi Commodity Exchange of India (MCX);
- Dubai Mercantile Exchange (DME).
For traders, this means that in terms of technical analysis, you cannot simply analyze a single chart and understand the medium- or long-term outlook for natural gas. Therefore, when forecasting natural gas prices, general fundamental factors that will affect natural gas prices around the world should also be taken into account. What these factors are:
- Supply and demand
The balance between supply and demand primarily influences natural gas prices. When demand for natural gas increases and supply cannot keep up, prices tend to rise. Conversely, prices tend to fall when supply is abundant, and demand is low. You can track the level of supply and demand at various resources, such as the US Energy Information Administration (EIA), Intercontinental Exchange (ICE) (options data), Natural Gas Intelligence (NGI), and others.
Weather plays a significant role in natural gas pricing, as it is the primary fuel used for heating homes and businesses during colder months. Cold winters lead to increased demand for natural gas, which can drive up prices. Conversely, mild winters can lead to lower demand and lower prices. For example, the warm winter of 2022-2023 in Europe caused natural gas prices to plummet as consumption fell.
- Storage levels
Natural gas is often stored underground in large quantities for later use. When storage levels are low and demand is high, prices tend to rise. When storage levels are high and demand is low, prices tend to fall. You can find storage levels of natural gas from various sources, including the US Energy Information Administration (EIA), the European Network of Transmission System Operators for Gas (ENTSOG), Gas Infrastructure Europe (GIE), National Grid (publishes weekly reports on natural gas storage levels in the United Kingdom) and Platts.
- Economic factors
The health of the economy can also influence natural gas prices. Strong economic growth often leads to increased demand for energy, including natural gas, which can drive up prices. Conversely, economic slowdowns can lead to lower demand and lower prices.
- Government regulations and policies
Government regulations and policies can also impact natural gas prices. For example, policies that encourage the use of natural gas for energy production can lead to increased demand and higher prices, while policies that restrict natural gas production can lead to lower supply and higher prices. When Russia invaded Ukraine in February 2022, the European Union imposed sanctions on Russian natural gas. Supplies from Russia to Europe plummeted, causing natural gas prices to skyrocket.
- Natural disasters
Natural disasters such as earthquakes, tsunamis, and tornadoes can have a significant impact on natural gas pricing. While earthquakes do not directly impact natural gas production, they can cause damage to the pipelines, storage facilities, and other infrastructure used to transport and store natural gas, which can disrupt supply and affect prices. For example, an earthquake in Southern California in July 2019 caused a temporary shutdown of the Aliso Canyon natural gas storage facility, which is one of the largest in the US.
The largest producers of natural gas in the world in 2021, according to EIA:
- United States: 935.6 billion cubic meters;
- Russia: 653.8 billion cubic meters;
- Iran: 259.8 billion cubic meters;
- Qatar: 180.6 billion cubic meters;
- Canada: 158.6 billion cubic meters;
- China: 156.5 billion cubic meters;
- Norway: 119.6 billion cubic meters;
- Australia: 95.5 billion cubic meters;
- Saudi Arabia: 85.3 billion cubic meters;
- Indonesia: 71.2 billion cubic meters.