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Will Mild Weather Impact Natural Gas Prices?

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Natural gas prices

On October 23, 2017, Henry Hub natural gas spot prices closed at $2.94 per MMBtu (million British thermal unit). This reading was higher than the $2.87 per MMBtu posted on October 16, 2017. The November US natural gas futures contract price closed at $2.99 per MMBtu on October 23, 2017.

Natural gas consumption and natural gas exports are expected to increase in 2018. Due to this forecast, the EIA anticipates average Henry Hub natural gas spot prices in 2018 to be $3.19 per MMBtu, up by 5.3% over $3.03 per MMBtu in 2017.

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Weather forecasts suggest that the United States is expected to experience warmer-than-usual weather until the end of 2017. Mild weather will likely result in a decline in demand for natural gas. As we saw in the previous part of this series, the natural gas supply increased 51.0 Bcf (billion cubic feet) during the week ended October 13, 2017. If supply is more than the existing demand, it may put undue pressure on natural gas (UNG) prices. A decline in natural gas prices may cause natural gas producers like Cabot Oil & Gas (COG) and Rex Energy (REXX) to face loss in their margins.

Effect on coal producers

When natural gas prices are high, utilities may consider coal to be the more economical fuel of the two. In such a situation, coal is chosen over natural gas, leading to strong market share for coal (KOL). On the contrary, the market share of coal will tumble if natural gas prices drop.

Coal producers like Alliance Resource Partners (ARLP) and Peabody Energy (BTU) would likely be able to improve their margins when natural gas prices are high.

Next, let’s have a look at crude oil prices during the week ended October 20.

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