Predicting Gas Prices: How AI Can Help
The Fragility of the Energy Market
The Russia-Ukraine conflict has highlighted the fragility of the energy market. When supply chains are disrupted, prices can fluctuate wildly. This is where Artificial Intelligence (AI) comes into play, offering a solution to predict gas prices and provide governments and traders with valuable insights.
The Research Focus
Most studies on AI and energy prices concentrate on short-term predictions or compare similar models. However, this research takes a different approach by focusing on predicting prices over a few days.
Data and Models
The study analyzes daily natural gas prices from the Henry Hub in the U.S. from 1997 to 2024. The objective is to evaluate how well different AI models can predict prices over 1 to 4 days.
Four models were tested:
- Feedforward Neural Network
- Support Vector Machine
- Random Forest
- Long Short-Term Memory (LSTM) Network
The Results
The LSTM network emerged as the top performer. For one-day predictions, its error rate was just 8.53%, which is notably accurate.
Why It Matters
For Governments
For governments dealing with gas shortages, LSTM models can predict price changes a few days in advance. This advance notice can help them plan better and avoid supply disruptions.
For Traders
Traders can also utilize this information to make smarter decisions, ultimately enhancing their trading strategies.
Conclusion
In summary, this research provides a solid foundation for governments to make informed energy policies and for investors to trade wisely.
