As winter gradually fades into spring, and warmer weather arrives, businesses around the province of Ontario will be impacted by changing natural gas prices. But predicting the price of natural gas is not easy, as many factors go into determining the ultimate cost.
Natural gas futures dropped after a small 47 Bcf pull for the week that ended March 15, trading at $2.753/MMBtu for the month of April, down from $2.855/MMBtu in the week ending March 8.
The latest report also forecasts that over the next 6 to 10 days the west coast and east coast of Canada will experience above normal temperatures, with the central states experiencing below normal temperatures. The most recent storage pull reported by the Energy Information Administration (EIA) was small enough for the inventory deficit to remain at 32% below the 5-year average. The EIA reported that the total natural gas in storage currently stands at 1.14 trillion cubic feet.
Supply & Demand
There is normally a drop in demand for natural gas in the spring as a result of warmer weather. However, that doesn’t necessarily mean a corresponding decline in futures prices. Still, the EIA expects strong growth in U.S. natural gas production to put downward pressure on prices in 2019. EIA expects Henry Hub natural gas spot prices will average $2.85/MMBtu in 2019, down 30 cents/MMBtu from 2018.
The EIA expects natural gas production will continue to rise in 2020 to an average of 92.0 Bcf/d. The EIA projects natural gas inventories will end March at 1.2 trillion cubic feet (Tcf), which would be 14% lower than levels from a year earlier and 28% lower than the five-year (2014-18) average. The EIA also forecasts that natural gas storage injections will outpace the previous five-year average during the April-through-October injection season and that inventories will reach 3.6 Tcf at the end of October, which would be 12% higher than October 2018 levels and 2% below the five-year average.
In the current market environment, the EIA expects that total supply of natural gas will outpace demand through the end of 2020. The EIA also forecasts that natural gas production will continue to increase, setting record highs in 2019 and 2020. That combination of increased production and supply suggests the possibility of lower prices for natural gas going forward. But experts caution that the supply-demand ratio could easily change and that production might decrease, leading to higher prices.
Energy Saving Options
Either way, it’s important for Ontario businesses to closely monitor their energy costs to keep them under control. Typically, equipment that involves heating and cooling will use the most energy. Replacing old heating, ventilation or air conditioning systems with new, energy-efficient systems is one possible option to mitigate higher costs.
Active Business Services’ energy experts have a range of products to help businesses mitigate changes in their energy costs. Consider getting an energy assessment with our energy consultants to see how your business’ energy needs and costs change from season to season.