Bob Iaccino, for the CME Group

At a glance:

• Several seasonal trends are influencing natural gas prices this summer season
• CME Group’s Henry Hub Natural Gas futures and options rose to record levels in the early summer months

Natural gas (NG) has long been associated with seasonality. Traditionally, demand increases during the winter months as households and industry increase their heating needs, leading to rising prices. During the summer season, demand for natural gas for air conditioning can also lead to price increases and volatility depending on weather conditions and supply levels. While natural gas prices currently exhibit typical seasonal summer demand, they are also affected by some changes in current supply-side fundamentals.

Changing demand patterns

Increased use for electricity generation

A key driver of summer demand is the increasing use of natural gas to generate electricity. As the world transitions to cleaner energy sources, natural gas is often seen as a bridge fuel due to its lower carbon emissions than coal and oil. For example, natural gas-fired power plants in the United States now account for a significant portion of electricity generation. Demand for electricity and natural gas soars during the summer, when air conditioning use skyrockets.

Switching to renewable energies

The global shift toward renewable energy sources such as wind, solar and hydropower is impacting natural gas markets. Although natural gas is often viewed as a cleaner alternative to coal, its role in the energy mix continues to evolve. In some regions, natural gas supplements intermittently available renewable sources, resulting in more consistent demand throughout the year.

Environmental and regulatory aspects

Environmental policies and regulations are increasingly shaping the natural gas market. For example, measures to reduce methane emissions can impact production practices and costs. In addition, regulations to promote energy efficiency and electrification can affect natural gas consumption patterns in the residential and industrial sectors. These measures can have a direct impact on the demand and supply of natural gas.

Supply-side dynamics

Growth in liquefied natural gas (LNG) exports

Another factor contributing to year-round demand is the growth of Exports of liquefied natural gas (LNG). The global need for cleaner energy solutions has led to a rise in LNG trade, with countries such as the US and Australia becoming significant exporters. This international demand does not follow the traditional seasonal patterns seen in domestic markets. For example, Asian and European countries may have different peak demand times due to their different seasonal and economic cycles. This international dimension adds an additional layer of complexity and contributes to the changing seasonality of natural gas.

In fact, traders and investors from around the world are increasingly managing their exposure to Henry Hub natural gas in the U.S., partly due to LNG exports. In 2024, over 120,000 Henry Hub futures were traded daily by non-U.S. companies through the first half of June.

“The U.S. has large natural gas supplies, but the world needs natural gas, and it’s turning to the U.S.,” Jeff White, executive director of energy products at CME Group, told me in a recent call (see above). “So everyone now has basis risk on U.S. natural gas, and they’re turning to CME’s Henry Hub futures and options to hedge that risk.”

Advances in extraction technology

Technological advances in fracking and horizontal drilling have revolutionized the natural gas industry. These technologies have opened up vast shale gas reserves, particularly in North America, and increased production. The ability to ramp up production quickly has, to a certain extent, decoupled natural gas supplies from traditional seasonal constraints. Producers can now respond more quickly to fluctuations in demand, whether in winter or summer.

Warehouse and inventory management

Storage levels and inventory management are critical components of the natural gas supply chain. Traditionally, gas is injected into storage during the summer months to meet high winter demand. However, with the increase in year-round demand drivers, storage and withdrawal patterns are becoming more fluid. This flexibility in inventory management helps stabilize supply and mitigate extreme price fluctuations regardless of the time of year.

Geopolitical factors

Geopolitical developments can have a significant impact on natural gas markets. Conflicts, trade policies and international agreements affect both supply and demand dynamics. For example, the conflict between Russia and Ukraine has a significant impact on European natural gas supplies, as Europe is dependent on Russian gas. Such geopolitical factors can create volatility and affect prices independently of traditional seasonal patterns.

Increasing market participation

Traders and investors use futures contracts, options and other derivatives to hedge against price risk or speculate on market movements. Given the potential for volatility throughout the year, CME Group’s Henry Hub Natural Gas futures reached a record average trading volume (ADV) of 578,682 contracts in May. Henry Hub Natural Gas options’ ADV also hit a record in May, and trading was up 80% year-over-year through early June.

Market participants are managing risk as the natural gas market changes, with seasonality patterns becoming less predictable and more influenced by year-round factors. Traditional strategies that rely on winter demand peaks may no longer be sufficient. Instead, a more nuanced understanding of the various factors driving natural gas markets is essential. This evolving environment presents both challenges and opportunities. By staying informed and flexible, participants can navigate the complexity of the natural gas market and capitalize on new trends.

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