PRESENTER: In this video, I'm going to explain the factors that can influence natural gas price. In contrast to crude oil, natural gas is almost not a global commodity, yet. It can be construed as a domestic commodity in the United States. So things that are happening outside the United States, they don't have a major impact on the natural gas prices.
So we can focus on the factors that are happening in the United States. And two of these major factors are the US economy and weather events. Other factors, such as the level of US natural gas inventory, can also impact the natural gas prices on a weekly basis.
The higher natural gas inventory means high supply or having enough supply for fluctuations in demand. So if there is a high level of inventory, it can translate to not having, not experiencing, not expecting the higher price of natural gas.
US economic indicators such as the stock market, employment, figures housing and manufacturing, they impact the natural gas prices. On the other side, global economy, US dollar exchange rate would not have an impact on the pricing of natural gas.
The first factor is the weather. More than 50% of American homes are heated by natural gas. So any cold or extreme weather could potentially increase the price if there is a shortage of supply. If there is an unexpected demand, it could shift the price to higher prices.
Also, hot weather could cause the price increase, because people will use air conditioning to lower the inside temperature for space cooling. And so increase in demand for electricity could potentially increase the natural gas prices.
The other weather event is hurricanes, same as crude oil, that we explain how a hurricane in the region of Gulf of Mexico can disrupt the supply and damage platforms. Evacuation and recovery after a hurricane can potentially interrupt the supply.
US economy-- similar to crude oil, fluctuations in economy translate into an increase or decrease in energy consumption. North American natural gas is not a truly global commodity, so the global economy does not have an impact on the price of natural gas.
The other factor that could potentially affect the natural gas price is the reports about production levels versus demand indicators. Any statistics, any information about supply or demand of natural gas can potentially affect the price.
EIA, Energy Information Administration from Department of Energy, publishes a weekly report every Thursday at 9:30 AM. This report is about natural gas storage. And it has some pieces of information that I'm going to explain them in the following slides.
So EIA Weekly Natural Gas Storage Report includes pieces of information on natural gas storage. The first piece of information is regional breakdown-- the activity for the EIA-defined regions, which includes the major consuming regions, both east and west, and producing region. The producing region is further broken down into the salt and non-salt storage facilities, with the majority of the salt caverns existing along the Gulf Coast.
Injections, or gas added, and withdrawals, gas removed, by region can be telling about the weather conditions in each area. A good balance is when the consuming regions are withdrawing the same amount of gas as producing region is injecting gas.
The other very important piece of information included in EIA Weekly Natural Gas Storage Report is the total gas in storage. It is the change in historic levels from one week to the next week. It is the first thing that traders and other parties involved in the natural gas market would look to for guidance.
Excess storage, a high level of storage or injection in the report, can be translated to a bearish price signal. That is, the production exceeds demand for the prior week.
The converse is also true for the removal of gas from the storage, or withdrawal in the report, that can indicate demand exceeded the production for the prior week. Prior to the release of the report, analysts have compiled forecasts in the variance of the actual volume to these predictions.
The other piece of information that can be found in EIA Weekly Natural Gas Storage Report is a comparison to a year ago. This data includes the information-- the current inventory level compared to the same period the previous year. In order to truly interpret this comparison correctly, we must consider the weather in this year with the last year, if there was or there is harsh winter we are experiencing or we were experiencing cold days.
The last piece of information in EIA Weekly Natural Gas Report that is important for us is a comparison to the five-year average that can be found in the report.
The other factor that can influence natural gas price is electrical generation fuel switching. A large amount of country's power plants were fueled by coal. And they can switch. They can switch their fuel to natural gas if natural gas prices are competitive or more restrictions are being enforced for the emissions. But this effect is a more long-term effect.
Also, the Nuclear Regulatory Agency publishes a daily status report for all nuclear power plants in the United States. When plants are down, more electricity is generated by natural gas.