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Northeast natural gas spot price sensitive to temperature change

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), natural gas spot prices fluctuate throughout the year in response to several factors, including weather, production levels, supply interruptions, pipeline constraints, inventory levels, and the availability of energy sources.

Temperature changes more frequently correlate with natural gas spot price movements than any other factor. Natural gas demand and, in turn, natural gas prices in the spot market, will generally rise as temperatures move further away from 60 °F, as more natural gas is needed for space heating as temperatures cool and for power generation as temperatures warm.

The EIA explains that this relationship takes different forms at various locations across the US. The impact of extreme cold is particularly pronounced, reflecting high usage for heating combined with infrastructure constraints in some markets.

In the Northeast, prices are particularly sensitive to temperature variations, rising by more than other regions as temperatures cool and high demand exacerbates pipeline constraints, as well as when temperatures warm and rising natural gas demand from electric generators can strain pipelines.

Conversely, during more temperate days in the spring and fall, when pipeline capacity is generally sufficient to meet lower demand, the proximity of northeaster hubs to increasing Marcellus region production results in prices that are lower than those in other parts of the US.

For more detailed analysis of natural gas spot price swings in the Northeastern US, see also ‘Northeastern US seasonal variation in natural gas spot prices’.

Adapted from a press release by Emma McAleavey.

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