Increasing demand is pressuring prices, Natural Gas Supply Association (NGSA) President R. Skip Horvath said Friday, reiterating the group’s predictions in its Winter Outlook last September that market fundamentals would put upward pressure on the natural gas market.

“That is exactly what we are seeing today,” Horvath told a conference in Washington, DC. “First, natural gas demand is up. Manufacturing has expanded, increasing industrial and commercial demand for natural gas.”

According to the NGSA, the Institute of Supply Management’s December report revealed a business activity index of nearly 55% in December, indicating expansion. Horvath added that the colder than normal winter is increasing weather-related demand. From November through mid-January the weather in the U.S. was 15% colder than last year, he said.

“Second, the balance between supply and demand is tight because it takes time for exploration and production activity to increase in response to higher prices,” Horvath said. “And therefore it takes time for additional supply to flow through to consumers.” He itemized the hurdles:

“We understand that consumers are concerned about increasing natural gas prices and are asking, Why? Is the market not working or is pricing being driven by basic supply and demand fundamentals?” Noting that he is not surprised by the question, Horvath said he does have an “emphatic” answer. “The natural gas market continues to be strong and it works,” he said.

As for the NGSA’s confidence in the natural gas indices, Horvath said they have been independently developed for over 20 years and are an important part of the market mechanics. “As a result we have a high stake in insuring their accuracy,” he said. “We believe this pricing system is self-correcting and that the industry must be allowed to work out a solution without unnecessary government interference.”

Horvath said the NGSA believes the integrity and accuracy of data submitted is “critical” and that appropriate levels of company assurance should be applied to the data submission. “We believe that indices published by independent sources and supported by robust data gathering services offer the most effective means of disseminating market information,” Horvath said. “NGSA does believe that processes can always be improved, however, and our members are working with the index providers to continue to increase the accuracy of price data reported.”

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