| | Written by Nabi Chaudhary
Natural gas prices have also had extreme price swings as did domestic and global oil markets. Therefore, short term gas prices have come down significantly in part due to their historical tie with oil prices. (Short term price is what the media usually quotes). Some analysts suggest that a supply shortage is inevitable as low short term prices reduce the drilling of new wells.
Natural gas is traded as a commodity on the New York Mercantile Exchange. One thing to keep in mind is that natural gas in Canada is priced in US dollars, so if the Canadian dollar goes down, long term gas prices will go up. Also, because the Canadian economy is affected so much by gas prices, if the world price of gas goes up, the purchasing power of the Canadian dollar will go up, lessening the increase in gas prices.
Fundamentals of natural gas prices:
Lower production from new gas wells, less new drilling and depletion of older wells.
- New electricity generation is usually gas fired.
- Supply is flat and is expected to remain so, and demand is up.
- During the summer of 2007 natural gas prices averaged about $7 per GJ.
- By June 2008, natural gas futures jumped about 80 percent and hovered at or above $13.
- In late July, prices began to decline, trading below $9 in August.
- At the end of September, prices were in the $7 to $8 range.
- By the end of February 2009, prices were near $4 per GJ off 70 percent from their 2008 peak.
Why are natural gas prices so volatile?
Natural gas is a worldwide commodity. The market’s volatility is due to:
- Tighter supplies and global demand shift.
- Global tensions.
- High cost of competing fuels such as oil and propane.
- Decreasing natural gas supplies from Canada.
- Weather, such as extreme cold weather or hurricanes that may damage gas drilling or refining facilities.
- Increasing international demand for natural gas.
During the 2007/08 heating season, natural gas price in Alberta averaged around $6.45 per GJ. Forecasters are projecting the natural gas price to be in the range of $5 to $7 GJ over the next several months; i.e. up to the fall of 2009.
The graph below shows fluctuations in natural gas prices from January 1997 to May 2009 .  Source: Agriculture and Rural Development, Statistics and Data Development Branch, Alberta Farm Input Prices.
The Greenhouse Business is a quarterly publication jointly produced by Alberta Agriculture and Rural Development and Dr. Mohyuddin Mirza.
Editors: Mohyuddin Mirza and Nabi Chaudhary
Contact, comments and feedback: mohyuddinmirza@gmail.com;
nabi.chaudhary@gov.ab.ca
Disclaimer: The identified use or notation of any particular brand of product is not identified as a recommendation nor any recommendation should be inferred. |
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