The spot price for natural gas on Nov. 23 at the Henry Hub in Louisiana was $4.70 per million British thermal units and was the highest price since a temporary spike in January 2018, according to the U.S. Energy Information Administration. Prices have since fallen over the past week but have exceeded expectations and remain higher than they’ve been in much of the past four years.
Natural gas is used as the primary space heating fuel for nearly half of all U.S. households, and when temperatures are colder, natural gas consumption rises for heating purposes. Heating degree days, a temperature-based measure of heating demand, were 14% higher in November than the 10-year average for the month, according to the National Oceanic and Atmospheric Administration. In the Midwest and Northwest, heating demand is often the greatest, and heating degree days were 17% and 28% higher than the 10-year average, respectively.
Low levels of natural gas in storage likely contributed to the price increases while heating demand rose, according to the EIA. Natural gas inventories at the end of October were at the lowest level since 2005. The inventories were less than 3.1 trillion cubic feet or 19% less than the previous five-year average.
Natural gas prices exceeded market expectations in October, and based on the value of natural gas futures and options contracts for December 2018 delivery traded during the five-day period ending Nov. 1, prices were expected to range between $2.63 per million British thermal units and $3.95 per million British thermal units. The chance the prices would be more than $4 per million British thermal units was less than 2%, but on Nov. 28, the contract for December delivery was $4.72 per million British thermal units.
Increased production of natural gas is expected to lead to lower prices in 2019, and the spot prices at Henry Hub are expected to be $2.98 per million British thermal units in 2019, down from the 2018 expectation of $3.01 per million British thermal units.