Natural Gas Prices and Extreme Winters

U.S. Midwest and East Temperature Anomalies Superimposed with Natural Gas Futures Prices Graph

This graphic depicts daily natural gas prices superimposed over a time series of monthly temperature departures from the 1981–2010 average for the U.S. Midwest and East. The blue vertical lines indicate cold winters, the red indicate warm winters, and the gray indicate near average winters.

Approximately half of the nation’s households use natural gas as their primary source of heat. Wintertime temperatures drive the demand for heat, and as a result, day-to-day fluctuations in the temperatures can drive changes in the natural gas market. A paper coauthored by a team of NCDC and Cooperative Institute for Climate and Satellites–North Carolina scientists, along with scientists in academia and the private sector, explores how natural gas prices react to temperatures in the Midwest and East regions of the United States during the winters of 2011–2012 and 2013–2014. The full version of the paper titled, “Natural Gas Prices and the Extreme Winters of 2011/12 and 2013/14: Causes, Indicators, and Interactions” is available online in the Bulletin of the American Meteorological Society.

Energy meteorologists constantly work to improve the forecasts that traders in the natural gas market use to help make decisions. Traders typically rely on temperature forecasts 2–4 weeks in advance to anticipate the level of natural gas demand. In order for meteorologists to make those types of forecasts, they often look to teleconnections from the tropics and the Arctic, such as the El Niño–Southern Oscillation, Arctic Oscillation, North Atlantic Oscillation, and Eurasian snow cover. The exceptionally warm winter of 2011–2012 and the unusually cold winter of 2013–2014 are examples of how these various teleconnections affect winter season conditions.

The warm winter of 2011–2012, with March 2012 being the most above average month since 1895, resulted in a lack of heating demand. This led to a record surplus of natural gas storage, spurring prices downward to an 11-year low in April 2012. In contrast, the winter of 2013–2014 was unusually cold and the high level of demand exhausted the surplus natural gas supply. Prices rose to their highest level since the beginning of the global recession in 2008.

The paper demonstrates how meteorologists currently use weather and climate data, like NOAA’s Climate Data Records, to understand long-term trends in temperatures and teleconnections to provide more accurate and timely long-range weather forecasts. Ultimately, the fluctuations in temperature and subsequent demand for natural gas in 2011–2012 and 2013–2014 highlight the susceptibility of our economy to changing weather patterns.