

Three supply side factors affect prices:

  • Variations in the amount of natural gas production
  • The volumes of natural gas imports and exports


Three demand side factors that may affect prices:

  • The level of economic growth
  • Variations in winter and summer weather
  • Prices of competing fuels



Increases in demand tend to lead to higher prices, while decreases in demand tend to lead to lower prices.

Domestic natural gas prices are driven primarily by supply

Most of the natural gas consumed in the United States comes from domestic production. U.S. dry natural gas production increased from 2006 to 2015, when production reached the highest recorded annual total. The increases in production during that period were mainly the result of more efficient, cost-effective drilling and completion techniques, notably in shale and other tight geologic formations (see the May 5, 2016 Today in Energy article). Increased natural gas supply tends to lower prices. For example, average wholesale (spot) prices for natural gas fell significantly throughout the United States in 2012 compared with 2011. A mild 2011–12 winter, high natural gas inventories, and rising natural gas production in the Marcellus and Eagle Ford regions contributed to lower spot prices.

Severe weather can disrupt production


Economic growth can affect natural gas demand and prices


Winter weather strongly influences residential and commercial demand


Hot summer weather can increase power plant demand for natural gas

Temperatures can also have an effect on prices during the cooling season. About 33% of U.S. electricity was generated with natural gas in 2015. Warmer than normal temperatures can increase the demand for air conditioning, which increases the power sector's demand for natural gas and can lead to increased prices.



Competition with other fuels can influence natural gas prices

Some large-volume fuel consumers such as electricity generators and iron, steel, and paper mills can switch between natural gas, coal, and petroleum, depending on the cost of each fuel. When the cost of the other fuels fall, demand for natural gas may decrease, which may lead to lower prices for natural gas. When the cost of competing fuels rise relative to the cost of natural gas, switching from those fuels to natural gas may increase natural gas demand and prices.