In the last 50 years we have experienced 2 complete natural gas (NG) price boom/bust cycles. The 3rd began in 2021. The latest increase is similar to the 2 earlier ones in many respects, but certain new events and new conditions will affect the current cycle.
Natural gas (NG) is a critically important resource. It supplied 32% of the energy consumed in the US in 2021 and it was the fuel for 38% of the electricity produced. All segments of our society rely on natural gas directly or indirectly. Hence NG price increases will ripple throughout the economy.
This report identifies the factors that drove prior major price changes and shows how NG markets have evolved since the first energy crisis in the 1970s. It then reviews how these factors and other key concerns will affect prices in the future. The factors addressed include weather, NG production rates, exports, power generation, electrification, regulatory and environmental constraints as well as the strength of the economy.
There is too much uncertainty to reliably predict future NG prices and no attempt is made to do so. Rather, the goal of this report is to provide a basic understanding of natural gas market dynamics and the factors that will drive price changes. This information can be used to help develop planning scenarios and to provide a better understanding of how changes in the economic, political and social environment will affect prices.
While no attempt is made to predict prices, there are some significant conclusions that can be drawn from current conditions. Demand for NG will remain strong due to growing use of NG for power generation, rapidly rising exports of liquified natural gas (LNG) and stable usage in residential, commercial and industrial applications. NG production has recovered to pre-Covid shutdown levels, but multiple constraints make additional large increases unlikely in the near-term. Continued high demand combined with constraints on expanding production will keep upward pressure on prices. Given that supply growth will be limited, the only feasible triggers for a sustained price decline are a much warmer than normal winter and/or a major economic downturn.