EIA: temperature has strong effect on northeast spot gas prices

Natural gas spot prices fluctuate throughout the year in response to several factors, including weather, production levels, supply interruptions, pipeline constraints, inventory levels, and the availability of other energy sources, the U.S. Energy Information Administration (EIA) said in a report.

Temperature changes, more than any other factor, most frequently correlate with natural gas spot price movements. Natural gas demand and, in turn, natural gas prices in the spot market, will generally rise as temperatures move further away from 60 degrees Fahrenheit, as more natural gas is needed for space heating as temperatures cool and for power generation as temperatures warm.

However, this relationship takes different forms at various locations throughout the United States. The impact of extreme cold is particularly large, reflecting high usage for heating combined with infrastructure constraints in some markets. In the Northeast, prices are particularly sensitive to temperature variations, rising by more than other regions as temperatures cool and high demand exacerbates pipeline constraints, as well as when temperatures warm and rising natural gas demand from electric generators can strain pipelines.

Conversely, during more temperate days in the spring and fall, when pipeline capacity is generally sufficient to meet lower demand, the proximity of northeastern hubs to increasing Marcellus Region production results in prices that are lower than those in other parts of the United States.

Source: EIA, August 11, 2014