MGE Talks Business

MGE Talks Business

Find it here.

Efficiency Technology Energy Fall 2017

Natural Gas Outlook is Promising

Drilling rig

Natural gas prices are expected to remain relatively stable this winter due to strong supplies and ample storage/transportation facilities.

Natural gas supply remains strong and prices are stable as we make our way through fall and head into the winter heating season.

Despite three major hurricanes, including two that directly hit the United States, we have not seen the volatility in production or prices that we saw in 2005 with hurricanes Katrina, Rita and Wilma.

"Production in the Gulf of Mexico has fallen dramatically in the last 20 years," explained John Jicha, MGE Director of Energy Supply and Trading. "Where it used to make up about 25% of U.S. production, today only about 3% of U.S. natural gas production comes from the Gulf. So hurricanes, even major ones, don't have the impact on production or prices that they used to."

The ongoing shift of supply from the Gulf of Mexico to inland shale basins will continue to keep hurricane impacts to the natural gas market to a minimum. Shale is expected to make up around 70% of natural gas production by 2025. Better and more efficient equipment allows producers to get more natural gas out of each well, increasing their annual capacity.

Several natural gas pipeline expansion projects, including some in the Midwest, are also helping meet the growing demand.

Natural gas prices are expected to remain relatively stable this winter due to strong supplies and ample storage/transportation facilities, based on normal winter weather conditions.

"However, natural gas is still a commodity traded on the open market and the price can fluctuate," Jicha added. "If we have an extended period of extreme cold, we would expect to see regional and daily volatility in prices."

In addition to buying extra gas during the summer when it is typically less expensive and putting it into underground storage, MGE also uses a risk management program for a portion of its natural gas supplies. Similar to insurance, this provides some protection from the potential extreme price increases during the high-demand winter months.