9 Events That Will Ignite Natural Gas Prices

Pipeline

Photo: Scott Barbour/Getty Images

Natural gas might be the most talked about commodity lately.  Everyone from Jeffrey Gundlach to Wilbur Ross are extremely bullish on the fossil fuel.However, prices continue to trade near historic lows. In a recent note to clients, Morgan Stanley analysts say they don’t expect prices to go much higher this year.

Business Insider reached out to the U.S. Energy Information Administration to better understand what could get prices moving.

Hurricanes

According to a 2006 report from the Oil and Natural Gas Journal, hurricanes in the Gulf of Mexico cause substantial damage to gas processing and pipeline facilities.

'It will take the industry several years to recover from the disruptions, and some lost production will never be recovered.'

And indeed, prices did not recover until the Great Recession.

Source: Oil and Natural Gas Journal, FRED

Speculation

In a January 2006 brief about a 10 per cent surge in prices, UPI reported, 'Analysts appeared stumped by the sudden surge in a commodity that is well supplied within the United States.'

A year later, Congress was holding hearings about excessive speculation in the markets.

'In 2006, January futures contract prices skyrocketed, exceeding October prices by $4, more than twice the historic norm,' Sen. Carl Levin said in his opening statement. 'This price difference is the largest between these two contracts in five years.'

While pre-Great Recession rampant speculation appears to have been curbed, one cannot ever say it's been eliminated.

Production cut announcements

Just last week, prices jumped 5 per cent on news Chesapeake, ConocoPhillips and Encana Corp. were taking some drilling locations offline.

Source: AP

The seasons

As you can see, prices are usually expected to peak in summer and trough in winter.

Source: EIA

Long holiday weekends

Holidays like labour Day and Good Friday can be particularly eventful according to California's gas utility, the beginning of September is often accompanied by pipeline managers revising their inventory requirements, or 'operational flow orders,' to balance out demand.

Source: Dailymarkets, FRED

Weather extremes

According to EIA analyst Amy Sweeney, swings in hot and cold temperatures produce coincidental swings in natgas prices.

Source: EIA

Pipeline ruptures

The EIA's Sweeney also said accidents and unscheduled pipe maintenance causes markets to freak out.

Source: EIA

Crude oil price shocks

The EIA has entire metric devoted to tracking the crude-to-natgas ratio. With rare exception, crude prices usually foreshadow natgas prices.

Source: FRED

Local weather anomalies

Unlike oil, which is a global commodity natural gas remains subject to local weather patterns. When tornadoes in Alabama required a nuclear plant there to shutdown, prices spiked.

Source: BusinessWeek

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