Gas Price Watch

For a variety of reasons, natural gas prices have been low for about the past year. My gas price watch is really just staying on top of the trend in order to keep clients informed.

Update; April 2014 from the US Energy Information Administration

Colder-than-normal eastern winter leads to record natural gas storage withdrawals

This winter’s natural gas withdrawal season (generally considered to be from the beginning of November to the end of March) saw the largest storage withdrawal on record (since 1994-95). Historically, winter stock withdrawals average around 2 trillion cubic feet (Tcf). However, this winter much of the country experienced sustained colder-than-normal temperatures, and almost 3 Tcf of gas has been withdrawn from storage as of the end of March.

gas-prices-jan-14Most of the country east of the Rockies experienced a significantly colder-than-normal winter this year, with the Midwest having a particularly cold and snowy winter. From Minnesota to Michigan and down to Missouri, on a statewide basis, this December-through-February period was between the 5th and 10th coldest on record. The cold weather increased demand for propane for space heating, straining a market that was already tight because of increased demand for crop drying in November, leading to Midwest propane price spikes.

Chicago recorded its coldest winter (December to March) on record (since 1872). Heating degree days, a measure of how much and for how long that temperatures drop below 65 degrees Fahrenheit, were more than 20% above (meaning colder than) the 5-year average in Chicago this winter. Natural gas prices at the Chicago Citygate normally trade at a premium of 10 cents to 20 cents versus prices at the Henry Hub in Louisiana. However, between the beginning of December and the end of March this differential averaged more than $3 per million British thermal units (MMBtu). In January and February, repeated price spikes resulted in an average differential to Henry Hub of $5.42/MMBtu.

Gas Price Watch

Gas Price Watch

Historically, the summer months have lower natural gas prices as usage goes down throughout the county because consumption from heating is virtually zero. Natural gas is still utilized in the production of electricity and at the moment, this sector may be poised for a huge increase in consumption.

Besides seasonality, what else will affect gas prices?

Currently, coal is the fuel for almost half of the electricity produced in the United States and various pollution regulations are making it difficult if not impossible for this to continue. With the current political agenda and various EPA rules determined to minimize if not completely stop the use of coal for electricity generation, gas is the only alternative that power companies have.

As demand for natural gas goes up, so will prices. In addition, the fall heating months are just around the corner so the normal seasonal price adjustments from anticipated heating demand will begin to move prices upward.

When should you start the process of switching gas providers?

Since the timeframe from start to actual switch of energy providers is typically a couple of months, now may be a good time to at least compare the available rates.

There are a few other advantages that businesses get when they switch energy providers. If your business currently uses your local utility to resell gas to you, you have a variable rate plan. Your prices actually change daily and you are billed for a monthly average. As the cost of gas for your local delivering utility goes up, so does your price.

Most alternate gas providers offer fixed rate, multi-year contracts. This enables your business to lock-in a rate for a few years and not be subject to market fluctuations. An additional advantage is better expense control as you can plan ahead and budget your gas expenses when you have a flat rate.

Do I have to become an expert in the gas market?

Most businesses do not have the time or expertise to research and compare rates from all the possible gas providers in their state. This is where an energy consultant can come in handy. Many energy consultants will do all the legwork for your company and not charge you a dime. The income that they recieve is from your new gas supplier only after a switch in suppliers is made. Therefore, it is to the Energy Consultant’s advantage to find the most competitive gas rates for your business. If your business can’t save money, why should it switch energy providers. If no switch is made, the energy consultant does not get compensated. For a no cost, no obligation gas rate analysis


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