Natural gas prices down, but may increase for 2010
Tightening gas and oil supplies and the prospects of at least short-term recovery are driving a rebound in futures prices.
Record natural gas storage inventory levels and the economic downturn contributed to lower natural gas prices over the past year.
"The roller coaster ride we experienced during 2008 and 2009 was difficult to predict," stated Jeff Keebler, MGE's senior director of Energy Supply Procurement. "But futures prices going into 2010 indicate that natural gas prices are starting to trend back up."
"Commercial demand has been down due to the sluggish economy," said John Jicha, MGE's manager of Energy Trading. "The reduced demand continues for manufacturing, and many facilities across the country have reduced output – some aren't even operating."
One short-term consequence of this has been gas stockpiles reaching their highest level ever since the Energy Information Administration (EIA) started keeping records 15 years ago.
This is similar to the recent glut in crude oil that helped gasoline prices fall and remain lower than they've been for years.
Since natural gas has become a global commodity like crude oil, its market prices now tend to more closely parallel the trend lines of crude oil. As we have seen, gasoline has begun a gradual but steady rise during 2009 from its low at the beginning of the year.
With the stock market rebounding – recently closing above 10,000 during October – guarded optimism of economic recovery also has contributed to concerns of increased demand that could contribute to tightening supplies. Natural gas futures contracts for the second half of 2010 are currently above $6 per dekatherm (Dth). By comparison natural gas closed out the month of September 2009 at $4.84 per Dth.
Fortunately, MGE employs a comprehensive risk management program designed to protect customers from the most severe of price spikes.
Our approach includes buying natural gas for storage and purchasing financial hedging products throughout the year. This provides both price stability and adequate natural gas supply for the peak winter months.
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