Menu

Natural Gas Prices Expected to Stay Low

It is likely that prices of natural gas – now at their lowest in two decades – will be even lower during the home heating season next winter, Purdue University energy economist Wally Tyner says.

In another good sign for low energy costs for consumers, Tyner also expects gasoline prices to stay in the range of $2 to $2.50 a gallon for much of 2016.

Consumers already are seeing lower heating bills this winter even before the recent price drop. Tyner said that while the price of natural gas in December is the lowest it has been since 1994, consumers won’t see the full benefit of that in their gas bills this winter. That is because most of the natural gas that will be delivered this winter has already been contracted.

“However, it likely means that home heating costs will fall more next winter,” he said.

Tyner lists several “supply-and-demand drivers” that are keeping the price of natural gas so low:

  • Natural gas is produced from both conventional and shale oil and gas formations, so the “fracking” boom has led to large supply increases of natural gas.
  • The large supply increase has been faster than the rate of demand increase, so price has come down. Also, there is little international trade in natural gas, so the export market is quite limited.
  • While the low price has discouraged additional drilling for natural gas, oil and gas drilling efficiency has increased tremendously the past 2-3 years.
  • Normally, natural gas is put in storage in summer months, and the stored gas is used over the winter months. This year, however, so far the winter has been abnormally warm. Natural gas storage facilities are approaching full capacity, and limited additional storage is putting tremendous downward pressure on prices.

Tyner noted that natural gas is used not only by many consumers for home heating but also by industry for process heat and to generate electricity.

“Changes in natural gas prices, therefore, ripple widely through the economy,” he said.

For gasoline, Tyner explained that price prospects depend mainly on what happens to the price of crude oil. Crude oil briefly was about $32 per barrel in December 2008 and January 2009. Today, it is about $35. He said forecasts for crude prices for 2016 range from falling to about $20 to increasing to $60 or more.

“My sense is that we are near the bottom for crude oil and that it will remain relatively low for much of 2016,” he said.

Source: Keith Robinson and Wally Tyner, Purdue University 

Recent News

Disaster Avoided? Reviewing the 2019 Grain Ending Stocks Situation
11/19/2019

Grain markets in 2019 had a familiar feel – a late June rally that faded as concerns about the U.S. corn and soybean crops subsided (see futures prices for corn here, soybeans here). This was especially frustrating for producers hoping for a substantial price improvement after spring planting challenges and record prevented planting acreage. Given Mother Nature’s […]

Soybean Crush Prospects
11/19/2019

The release of the NOPA soybean crush estimates last Friday indicated crush levels picked up substantially in October.  Driven by a moderate export pace for soybeans and a decent crush margin, soybean crush appears back on track for the 2019-20 marketing year For the 2019-20 marketing year, the USDA projects soybean crush at 2.105 billion […]

USDA to Extend Flexibility on Crop Insurance Program
11/15/2019

The U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) today announced it will continue to defer accrual of interest for 2019 crop year insurance premiums to help the wide swath of farmers and ranchers affected by extreme weather in 2019. Specifically, USDA will defer the accrual of interest on 2019 crop year insurance premiums […]

Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now