Expect dramatic falls in the gas price

Gas prices could be set to fall heavily as supply exceeds expectations.

After the "dramatic halving" of the oil price since June, says Nick Butler onblogs.ft.com, "there is every chance that gas will follow suit".

After spiking last February amid unusually cold weather, US natural gas futures dropped by nearly a third in 2014. They have now hit a two-year low of $2.9 per million British thermal units (mmBtu).

As with oil, supply has outstripped demand. Production, spearheaded by the US shale revolution, beat expectations this summer, and stockpiles look healthy, at 8% above last year's level. New pipelines in the northeast of the US have enabled producers to get all their output to market, notes Lex in the FT.

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The US Energy Information Administration reckons the extra supply "will more than cover any shortfall". Warm weather has tempered demand, making a shortfall even less likely.

"The threat of low inventories in the winter is gone," concludes Kent Bayazitoglu of Gelber & Associates.

No wonder, then, that US shale gas explorers' shares have suffered almost as much as oil explorers' stocks since the summer.

In the long run, more stringent environmental regulation is likely to prompt more industries and homes to opt for natural gas, the cleanest fossil fuel. But for now, as Lex puts it, "do not expect much improvement".

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.