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Buy and Benefit: Today’s Low Natural Gas Prices

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What many analysts considered a fluke in 2019 is proving to be an enduring trend in 2020: low prices for natural gas. And not just “low” - in many cases, prices have dropped to record lows and stayed there. A combination of factors coincided to give most U.S. markets the lowest natural gas prices seen in years with storage, production, weather and distribution creating a true buyer’s market. 

So, what happened and how long will these market conditions hold? 

 

Weather

Cold winter temperatures obviously drive demand for natural gas, as homes, workplaces and other facilities require gas for heating. Typically, January and February are the coldest months of the year. January 2020 was the third-warmest on record and unseasonably warm temperatures cut into gas demand. With the better part of winter behind us and no major storm forecasts or cold spells on the horizon, it’s safe to assume that gas demand for heating will remain low. 

 

Supply 

Ordinarily, more gas is produced than consumed from April through October and the surplus is placed in storage for winter use. This winter’s low demand flipped the script: a gas surplus due to both large quantities in storage and strong ongoing production. It’s simple math, but the results are evident in the market - high supply and low demand are driving natural gas prices lower and lower.

 

Power Generation

Natural gas is increasingly being used for power generation - a growing source of demand. This means that while natural gas prices are low, power prices are low, too. 

If demand for power spikes, it introduces a risk premium into gas markets. While warm weather is currently keeping prices low, there is no guarantee that the market is immune to price spikes. Pipeline trouble, production issues or even a sudden cold snap could cause prices to rise quickly and without warning.

 

Buy Now and Plan Ahead 

For energy buyers, a winning strategy for 2020 includes purchasing at low prices and creating a long-term plan. Taking advantage of current market conditions by locking in a low rate for gas and power will likely yield savings and help protect your budget from risk. Prices won’t stay low, so consider buying some gas now.

Most importantly, make sure you have a plan and be proactive about managing your energy procurement. To this end, Direct Energy Business experts are always available to discuss buying options and help you find the best solution for the future. 

 

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Posted: February 18, 2020

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