Why milder temperatures dragged down natural gas prices

8/1/2013 Market Realist/Yahoo Finance - By Ingrid Pan, Sr Energy Analyst | Market Realist

Demand for natural gas rises in the summer, when power plants generate more electricity to fuel cooling needs

Natural gas is a major fuel used in electricity generation, so demand increases in the summer, when more electricity is used for air conditioning. Hotter than normal weather can increase natural gas usage and consequently natural gas prices. For example, during the summer of 2012, much of the United States experienced record-hot temperatures. Cooling degree days from the week ended May 5 through the week ended September 29 totaled 1,311 compared to an average of 1,079. During that period, natural gas prices rallied from ~$2.30 per MMBtu (millions of British thermal units) to ~$3.30 per MMBtu, partially due to the unusually hot summer. Natural gas price movements especially affect the earnings of major domestic natural gas producers such as Chesapeake Energy (CHK), Range Resources (RRC), Quicksilver Resources (KWK), and Southwestern Energy (SWN). Additionally, many of these companies are part of the energy exchange-traded funds (ETFs) such as the Vanguard Energy ETF (VDE).

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