Natural gas prices are based on the price of oil and other factors in energy markets.
The Energy Information Administration reports that between 1999 and 2008, the price of natural gas remained on a steady upward path due to an increased demand and the rising cost of crude oil. In the United States, natural gas accounts for roughly 20 percent of the energy generated by electric companies and heats 60 million American homes. During this time, most of the natural gas needed was produced domestically in the Gulf Coast and Rocky Mountains and transported throughout the lower 48 states via pipelines; imports were minimal.
The picture has changed dramatically since the economic downturn in late 2008. Cold weather may still push gas prices up somewhat, but other traditional price pressures no longer apply. Domestic producers figure less prominently as natural gas imports increase, and where the rising cost of natural gas once prohibited industrial growth, the glut may now be an economic driver.
Traditionally, natural gas prices are thought to be linked to the value of crude oil, the main ingredient of gasoline. When the cost of crude oil goes up, consumers switch to natural gas whenever possible, and this increase in demand drives up the price. Crude oil and natural gas are linked in other ways as well. When the demand for crude increases, drilling kicks into high gear, and because natural gas and crude oil rely on an overlapping pool of labor and equipment, this can put upward pressure on natural gas production costs.
Increased crude consumption can also drive natural gas prices down, due to the fact that there are two types of natural gas: associated and non-associated. Associated gas is found in crude reserves, and therefore the production of crude oil can increase the natural gas supply, as well. Similarly, if rising crude prices spur the development of new drilling sites, natural gas reserves may also be discovered.
The Wall Street Journal reports that in April 2009, natural gas futures hit their lowest point in over 6 years, trading at $3.628 per million British thermal units (BTUs). This is down from a high of $13.694 BTUs per million in July 2008. According to the New York Times, though production companies in the United States have decreased their rig count by 50 percent, imports of liquefied natural gas are likely to continue streaming in from abroad over the next few years, which would keep prices low.
The natural gas market became flooded during the economic downturn of late 2008, which decreased demand in Europe and Asia, two regions that rely on imported natural gas to fuel their factories. As demand has dropped, supply has continued to increase. When natural gas prices were spiking, energy companies rushed to invest in new plants; as of April 2009, six new facilities were currently online in Yemen, Indonesia, Russia and Qatar, with more on the way by 2011. Though cheap natural gas is likely to spur economic growth, those who advocate for domestic production warn that falling prices will drive American companies out of business and prevent the development of new reserves.