Dive Brief:

• Natural gas prices averaged $2.49/MMBtu last year at the liquid Henry Hub trading point, often used as a national proxy, the lowest since 1999, according to U.S. Energy Information Administration
• Prices fell even lower from February to May, averaging below $2/MMBtu. However, colder weather put upward pressure on commodities and by the end of the end of the year, Henry Hub supplies were averaging $3.58/MMBtu.
• Gas prices influence the cost of natural gas generation, which typically sets the prices in wholesale power market auctions. While gas will likely be the dominant fuel this year also thanks to the low prices, coal could make something of a recovery as the pricing narrows.

Dive Insight:

Natural gas prices spent much of the last year at bargain pricing, but new analysis from EIA shows just how significant was the decline.

The full-year Henry Hub was "the lowest annual average price since 1999," the agency said. "Warmer-than-normal temperatures for most of the year and changing natural gas demand were the main drivers of natural gas prices in 2016."

As a result, gas surpassed coal as the primary power generation fuel last year, supplying more than a third of the country's electricity. Generators in 2016 used an average of 27.6 billion cubic feet per day (Bcf/d), topping the previous high of 26.3 Bcf/d in 2015.

Warm weather hit gas demand in the residential and commercial sectors last year, declining 7% and 4%, respectively. Natural gas storage inventories also remained robust for much of the year.

Regional supply issues had significant impacts but EIA said that, broadly speaking, gas prices began to inch upwards in the spring when demand rose alongside a dip in production. Cold weather in December sent prices markedly higher.

Last month, EIA said it expects natural gas production will grow by an average of 2.5 Bcf/d this year. Prices are also expected to rise due to growing domestic gas consumption and higher pipeline exports to Mexico and liquefied natural gas exports.

According to EIA, Henry Hub natural gas spot prices are expected to average $3.27/MMBtu in 2017.