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Natural gas tanks in a row

Does inflation impact natural gas prices?

Find out from one of our energy analysts.

March 18, 2022

Jared Leonardi is a natural gas analyst for Enel X who works with customers to help plan their energy budgets and minimize price risk. Today he’s sharing his perspective on a question he’s been hearing from customers frequently: is inflation causing high natural gas prices, and will continued inflation drive prices even higher? To see more analysis from Jared and his team, read our Monthly Energy Market Insights – February’s Insights are featured here



  • Inflation remains high in America and globally, and there are concerns about increasing inflationary pressures in the near-term.
  • The impact of inflation on natural gas should be minimal—natural gas instead is a leading indicator of inflation.
  • Nevertheless, natural gas prices remain high,  which has more to do with domestic supply and demand issues, despite the war in Ukraine or subsequent sanctions which seemingly should have a pricing impact.


At Enel X, we work closely on energy consulting and advisory with customers who are always working on long-term planning and budgets for their business. And to plan wisely, they need to know what to expect in energy prices. One concern we’ve often heard from customers recently is about inflation – in particular, how will inflation affect natural gas price?


Are natural gas prices high because of inflation?

Natural gas price, like most commodities, is driven by the market where it trades. This means gas prices are driven by the supply/demand of gas at a particular delivery location, and are independent from the wages, material costs, and associated variable costs in producing that gas. Thus, although those wages and other production factors in producing gas may be rising in tandem with inflation, they are not driving the price of natural gas.


Instead, prices are currently increasing because of a confluence of factors within the US, among them: long-running high demand, subsequently decreased storage, supply chain difficulties, pandemic effects, and geopolitical issues driving high international pricing and a high demand for exports. In the winter time, heat-load demand is one of the leading drivers of price. In the summer time, cooling demand dictates power-generation, which is a leading driver of demand during the season.


Below is the most recent natural gas storage report. The blue line indicates current storage levels. Levels are well below the 5-year average and even approaching the 5 year minimum number in storage, which are all bullish indicators for gas pricing.


This analysis can help us explain the price of natural gas through fundamentals, rather than inflation. In fact, high natural gas prices typically drive inflation, rather than inflation driving high natural gas prices.


Chart showing Natural Gas Working Storage over Time


Natural gas is a leading indicator of inflation

As demand for commodities increase, the overall price of all products derived from that commodity will increase as well—and it’s important to understand that natural gas and its derivatives are used as materials in a large range of paints, glues, plastics, chemicals, and so much more. For this reason, commodities like natural gas are generally thought of as a leading indicator of inflation.


The economic theory behind this is commodities generally respond quicker to economic shocks such as an increase in demand. They also reflect systemic shocks, such as a hurricane wiping out Gulf Coast supplies, in their prices long before a consumer will notice the difference in price, since consumers typically are dealing with products downstream of the natural gas.


This is also why financial advisors recommend commodities as a hedge against inflation within portfolios—commodities will rise as they have a hand in causing inflation, while other financial tools like equities are slower to be affected by inflation and could be affected in unpredictable ways.


Charting Consumer Price Index, Natural Gas and Inflation


Looking at your budget

Some customers may not yet see the price change. Even prices for energy consumption lag the commodity prices, because of how utilities typically purchase the gas. They generally set rates in advance, and some of these rates may be effective 3-6 months out, depending on the utility. Additionally, utility rates are set through their respective Public Utility Commissions. Many factors go into distribution and supply rates, not just inflation (especially the cost increases they have to absorb to generate and deliver gas and power to their rate base).


What’s next

Below, we’ve also included a rolling strip of NYMEX prices. This is snapshot of Henry Hub pricing 12, 24 and 36 months out on each of these points. Higher pricing on natural gas is primarily due to a change in its driving fundamentals (demand outpacing supply), and not the CPI. We do not expect existing inflation to have an impact on natural gas prices in the coming months; however, fundamentally, prices may continue to rise if supply continues to be outpaced by demand.


Chart showing NYMEX Rolling Strip over Time