Low Temps Boost Natural Gas Price As Oil Turns Cold

natural-gas-storage_300x231Houston Chronicle

By Robert Grattan

The price of natural gas, which swooned just two years ago to the chagrin of drillers and the delight of manufacturers and utilities, is quietly holding steady or even rising amid a high-profile crude oil price slide.

The gains mostly are seasonal – the price typically rallies or retreats along with winter heating demand – but other factors also are helping natural gas dodge the pressures that have knocked more than 25 percent from the price of crude oil since June.

In fact, analysts said, falling crude oil prices could send gas higher. Natural gas often comes from wells drilled to produce oil. Some of this byproduct, called associated gas, is burned off at the wellhead, but some of it also reaches markets.

If oil production falls because of lower prices, the supply of associated gas on the market will shrink, giving natural gas prices a boost.

U.S. natural gas fell below $2 per million British thermal units in 2012, thanks both to a torrent of gas flowing from shale plays and a mild winter. This year gas has rebounded above $4, because of a cold winter and below-normal temperatures so far this fall.

Continued cold weather sent the price up 13 cents to $4.37 in New York Mercantile Exchange trading Wednesday.

Natural gas prices typically represent a volatile mix of production rates, storage inventories and seasonal demand. It’s harder to transport and store than crude oil, which means that some local markets have less flexibility to import gas from other areas or from storage. So prices for gas traded in real-time at various locations can spike quickly in a cold snap.

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