If you’ve glanced at economic news at all over the past few weeks, or especially in the last few days, you’ve probably seen something about the steadily dropping price of natural gas. In fact, just yesterday morning many news outlets were reporting on the fact that the NYMEX (New York Mercantile Exchange) price for natural gas sank to a five month low. The NYMEX is one of the most popular barometers for the international demand for oil. And if you glance at our title graphic, you’ll see that natural gas prices have been on a pretty steady slip downwards for the last year. As a result, the price of natural gas has also been sliding:
Obviously, this will likely delight Canadian customers, especially with winter approaching.
What’s going on with natural gas? Why has it been so low?
Well, a big part of it is that exports to the United States have been steadily declining for years. In fact, export numbers to Canada’s neighbor have been dropping every years since 2007. And the reason for that is because of the increasing amount of gas being harvested from shale basins in the United States. While the U.S.’s shale reserves have long been ignored, technological developments in the past decade have made it financially worthwhile to drill for the previously difficult to access deposits of natural gas trapped in shale formations. As Canada’s southern neighbor’s access to its own natural gas reserves improved, its need to import natural gas has declined. As a result, between 2007 and 2014, Canadian exports to the Eastern U.S. have fallen by 65%, and exports to the Midwestern U.S. have fallen by 20%.
Canada has always been extremely cautious about ensuring a steady domestic supply of gas–in fact, the price of natural gas was tightly regulated until 1985–and has avoided the potential for stretching the country’s supplies too thin. And now, suddenly, the country has a surplus of the commodity. As a consequence, prices have been falling.
What does this mean for future gas prices?
Frankly, nobody knows. Canada has been looking to make up for declining exports to the United States by converting natural gas to LNG (liquid natural gas), which takes up much less space, and shipping it in tankers to China and the rest of Asia. These plans have been in the works for years, and despite some observers wondering if it will succeed, significant amounts of money continue to be invested into the endeavor.
There are concerns that China’s economy is slowing to a point where China won’t have a need for Canada’s exports, but it’s difficult to say what the future holds for China. Given the growing number of environmental problems and catastrophes that have been plaguing China, their economy may slow to a crawl and dry up the need for Canada’s guess. On the other hand, if China tightens regulations on industries such as the mining of its own energy reserves, rising domestic prices may encourage China to seek out cheaper natural gas exports from Canada and elsewhere.
Meanwhile, Japan–currently a major importer of natural gas and other energy sources–is currently engaged in the process of restarting the many nuclear reactors that were shut down after the Fukushima disaster in 2011. As more reactors come online, Japan’s need for external sources of energy will decline.
On the other hand, we are heading into an El Niño, which can cause all sorts of havoc with energy production all over the globe. If a major storm severely damages another country’s internal energy infrastructure–or Canada’s ability to produce or store natural gas–prices could skyrocket overnight.
People are divided as to what the future holds for natural gas prices. For now, it seems, the thing you can do is to pay close attention to the news.
