The gas market is stable, but may be headed in a serious direction. According to Bloomberg, the natural gas market has been disturbingly unresponsive in recent months.
The Energy Information Administration estimates that, in April, only 22 billion cubic feet of natural gas was able to make it into storage for the next winter.
The U.S. experienced the coldest April in the last 20 years. This caused boilers to remain on for an extra month to keep American families warm.
The average size of the American household is 2,400 square feet (the largest size in years) with an average of 300,000 items. The need to keep these spaces warm for another 30 days has caused the gas inventory to end 27% below the five-year average for the winter.
But inventories aren’t the only thing to have dropped. Prices have also fallen over the last year, causing the two to march along together like they did in 2004.
Still, a report by Grand View Research predicts that performance optimization, yield improvement, and cost reduction will drive the global specialty gas market over a six-year period. Unfortunately, that six-year period will be up by 2020.
Because the gas market is so closely tied to oil production, it seems unlikely that the gas market’s stagnant pace is set to continue. This can be a problem for companies tied to the gas market even with the occasional heat wave or cold snap temporarily shifting prices.
For U.S. consumers, a stagnant gas market may be for the best. Low gas prices can help mitigate increases in electricity and heating bills.
The market may also be beneficial to those companies who ship gas. For instance, pipeline owners who are less concerned with price and more concerned with volume may be able to benefit from the gas market’s current flatlining. Additionally, LNG exporters can also benefit from cheaper gas because it helps to boost sales.
Although there may seem to be little correlation between natural gas prices and crude oil, historical data shows the two to be strongly connected. When oil production shifts and oil prices shift, so do natural gas prices.
“A possible justification for this pattern is that oil and natural gas are close substitutes for each other,” Investopedia reports. “Advances in technology now allow end consumers to switch between fuels.”
That said, an oil production slowdown could eventually provide a correction for the gas market. LNG export terminals could also help boost the gas market by finding an outlet overseas. Yet both of these possible solutions would take years, leaving the gas market in questionable condition.