What drives natural gas prices?

Why do we care? Well, for one thing, because it’s relevant for understanding the market for electricity. Recent estimates are that about 25% of US electricity usage is met by burning natural gas in gas-fired electricity plants.

But also there’s been some buzz around natural gas recently. You may have read about hydraulic fracturing (“fracking”), for instance. The bottom line is that natural gas is low cost today, by historical standards. It’s also cheap relative to other energy sources like home heating oil and gasoline, if you were to compare them on an energy-equivalent basis. As the price of gas has crashed since the beginning of the 2008 financial crisis, the stock values of gas production companies and gas pipeline companies have also fallen. Some market observers think this means gas prices will be rising soon; others think we should settle in for a long period of cheap natural gas. The actual path of future natural gas prices will influence the cost of electricity, especially in the northeast.

So what factors influence the price of natural gas, and where do we think they are headed? Where gas is headed depends on your opinion about what really drives costs. In this post, we provide background on general gas fundamentals. At the end of this post, you will find links to interesting information, and technical expertise.

The Correlation between Electricity and Natural Gas Prices

Have you ever considered the correlation between your gas and electric bills? As the cost to heat your home rises, so do your electricity rates. Why is this? It’s all about supply and demand.

Let’s go back to your high school economic class for a moment (as much as you may not want to). Consider the supply and demand model you probably saw there. The law of supply is the idea for any given market price, a producer will supply a certain quantity, and as this price increases, producers are willing to supply more. Conversely, the law of demand states that for any given market price, consumers will demand a certain quantity, and as this price increases, consumers demand less. In any market, there is a supply curve and a demand curve. Where these curves intersect is the equilibrium market price, and is where the price for any good is determined.

How to Search for the Best Gas and Electricity Deals

If you live in the United Kingdom and are interested in saving some money on your gas and electricity service, you need to know how to go about finding the best deals. There definitely are ways to save on your gas and electricity consumption. The following are some tips on how to go about finding the best prices for these basic utilities.

Why Gas?

If you're currently using electrcity to heat your home, you could be missing out. By switching to LPG (liquefied petroleum gas) you could:

• Save money on your energy bills
• Lower your environmental impact with the lowest carbon fossil fuel available in rural areas
• Reduce your energy wastage
• Cook on a controllable gas flame
• Enjoy instant heat and hot water
• Benefit from a cosy living flame fire

Will gas and electricity prices continue to soar?

For most households, the cost of gas and electricity is now the third largest outgoing, after mortgages or rent, and food bills.

A recent round of price increases among the big six UK energy firms means that the typical annual energy bill is now around £1,400.