NGA ISSUE BRIEF: Natural Gas Price Trends

April 2022

Key Points
  • Natural gas commodity prices have been steady in recent years, in great measure due to strong U.S. domestic production and a positive supply balance.
  • The market for all energy commodities globally has become significantly more volatile in 2022, reflecting lingering supply chain issues, inflation, and the impact of Russia's attack on Ukraine.
  • U.S. EIA projects commodity prices to remain elevated in 2022 and then decline in 2023; EIA stated in April 2022 that it forecasts that the Henry Hub price will average "$5.23/MMBtu for all of 2022. We expect the Henry Hub spot price will average $4.01/MMBtu in 2023."
  • EIA data indicates that natural gas remains the lowest cost home heating source in the Northeast and nationally.
  • Spot market prices in the Northeast can be extremely volatile during high demand periods (such as the winter), reflecting high demand and infrastructure constraints.
  • It should be added that natural gas utility "firm" customers, such as residential heating consumers, are to a great extent protected from these market price swings due to utility planning and supply portfolio management.

The trend in natural gas commodity prices in the U.S. has been toward lower and more stable prices, as the country has experienced high domestic production, especially since 2008 and the rise of shale gas production.

The key variables in natural gas price formation generally include production levels, demand growth, the state of the economy, storage levels, weather, and alternate fuel prices.

The outlook as of April 2022 is for natural gas commodity prices to be more elevated than in recent years, reflecting a more unstable global energy market. 2021 saw higher commodity prices for all fuels, including natural gas, as economic demand increased as COVID restrictions eased, while at the same time supply chain and transport issues challenged the global delivery market. The trajectory for energy commodity prices in 2022 is even higher, as a result of continued supply chain issues, inflation, and the impact of Russia's war on Ukraine.

In its April 2022 "Short-Term Energy Outlook," the U.S. EIA projects that "the Henry Hub price will average $5.68/MMBtu in 2Q22 and $5.23/MMBtu for all of 2022. We expect the Henry Hub spot price will average $4.01/MMBtu in 2023. The forecast drop in prices for 2023 reflects our expectation that storage levels will be higher during 2023 than in 2022."

EIA noted in October 2021, in its annual "Winter Fuels Outlook", that natural gas would be the lowest cost home heating energy source in the Northeast for the 2021/22 winter (see chart below).


Short-term volatility reflecting delivery constraints during periods of high demand and cold weather do occur, especially in regional markets. The Northeast region, for instance, remains among the most price-sensitive markets in the country, reflecting its pipeline constraints.

Utilities have in place long-term supply and storage arrangements, and their "firm rate" customers, such as residential heating customers, are to a great extent protected from spot market fluctuations. As the U.S. EIA has observed: "Residential customers see less [price] variation because their bills reflect monthly average prices, which do not fluctuate as much as daily prices. Also, many residential customers stabilize their monthly bills by participating in yearly budget plans provided by their local gas distribution companies."

EIA notes that for New England and New York, "Pipeline constraints still exist in the area, and day-to-day price volatility is likely." Spot market volatility is most prone to impact "non-firm" or interruptible customers, with particular impacts on the power sector in the region, and thus ultimately electric customers. The Northeast region - a high-demand region but one characterized by pipeline infrastructure constraints - has experienced periods of some of the highest gas and power spot price volatility in the U.S. over several recent winters - in 2013/14, 2014/15, and 2017/18.

In its 2021 energy market review published in April 2022, the FERC noted the high-price fundamentals of the Northeast gas market due to capacity limitations. The agency stated that: "Algonquin Citygates, a Boston area hub, averaged $4.51/MMBtu in 2021 and saw its prices increase significantly late in 2021 during cold weather events. Due to constrained pipeline capacity into New England, segments of the region's pipelines often reach their maximum capacity in winter. Prices at Algonquin Citygates frequently reflect winter scarcity as well as the region's reliance on LNG imports to supplement pipeline supplies. As global demand for LNG increased, natural gas prices in New England also rose, reflecting the effects of the tight international market on the region."

Gas utilities in the region offer budget billing plans and efficiency programs, and LIHEAP funding from the U.S. government remains important for lower-income households. While natural gas remains the most affordable home heating fuel, programs such as these, and the opportunities for infrastructure capacity additions, remain key to helping serve customer needs and the needs of the local economy.

Daily Energy Prices, U.S. Energy Information Administration (EIA)

Natural Gas Price page, U.S. EIA