Why Natural Gas Prices Are Headed Higher [United States Natural Gas Fund, LP]

natural gasKent Moors: Natural gas prices, like any commodity, are affected by supply and demand – but weather plays a main role in this energy’s cost.

In order to forecast where natural gas prices will be trading in coming months, it’s important to look at what’s expected for this winter and how much temperatures will differ from region to region.

Here’s what we know about how weather will move natural gas prices into 2015…

The Effect of Another Long, Cold Winter on Natural Gas Prices

Natural Gas Prices

From the standpoint of temperatures, this winter is likely to be about the same as last year, according to most estimates, although snow falls in New England should be less than last year but heavier in the Mid-Atlantic. Prolonged frigid snaps will undoubtedly keep demand higher in most regions of the country.

That means we can expect U.S. natural gas prices to be between $4.20 and $4.45 per 1,000 cubic feet given a slight increase in overall demand. And as more electricity is generated from gas, that will also contribute to a higher pricing floor.

However, the regional differences will be more pronounced than in recent years. Given the continuing pipeline and distribution problems, prices will be higher in New England than in 2013, with some concerns already expressed for a possible regional shortfall in propane.

In Europe, you can add the geopolitical to the mix, as the likelihood of a continuing Ukrainian crisis will test the ability of Europe to sustain imports of full natural gas consignments from Russia. But the knock-on effect for North American gas prices from Gazprom’s European exports will be limited.

But there’s another factor that will be a real game-changer for natural gas prices.

In 2015, we’ll see the inauguration of significant liquefied natural gas (LNG) exports to both Europe and Asia from the United States. That will be the start of a fundamental realignment of energy trading routes to the continent, but not until later next year.

Meanwhile, coal prices will actually improve in specific areas of the United States (especially the Appalachian basin), where it remains the primary source of power and heat, and metallurgical coal exports will continue to rise to the level of exporting ability. Both of these will allow specific coal production and distributional limited partnerships to improve in value through the first quarter of next year.

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