What are the major factors affecting natural gas prices?

Impacting natural gas prices are mild weather, a decrease in demand for electricity, and an abundance of supply. Also significantly contributing to historically low prices is how and where natural gas is extracted. Horizontal drilling is an innovative technique for capturing natural gas in shale formations, including the Barnett Shale in Texas, the Marcellus Shale in Pennsylvania, and the Haynesville Shale in Louisiana. The technique, enhanced from the engineering perspective and fostered by regulatory changes during the last 5 years, gives the United States access to an abundance of shale gas that was previously unreachable.

An increasing number of coal-burning power plants are switching to natural gas for generating electricity. Natural gas burns cleaner than coal, and gas-burning power plants are cheaper than coal-burning plants to build and to operate. Recent state and federal legislation forces coal-fired power plants to decrease carbon dioxide emissions. In the last decade, use of natural gas to generate electricity increased 50 percent. The U.S. Energy Information Agency reports that between 2009 and 2010 natural gas use for power generation increased by 24% in North Carolina, 18% in Virginia, and 15% in South Carolina. The bottom line is cleaner skies and more gas being used to generate electrons.

When is the best time to buy natural gas?

In states with deregulated natural gas markets, now is a good time to consider pricing provided by many competitive suppliers. If you’re currently in a supply contract that ends a year or more from now, you can still consider locking in today’s prices for future supply needs in a supplier contract that begins when your current contract ends. A supply contract with terms and conditions that best take advantage of historically low natural gas prices can lock in a price for service as far out as 2016. States with deregulated natural gas markets are AR, DC, FL, GA, IN, KY, MA, MD, MI, NJ, NM, NY, NC, OH, OK, PA, SC, TX, VA, WV, and WI.

Will my local utility penalize my company for buying natural gas from a supplier?

Since the Federal Energy Regulatory Commission deregulated natural gas in the 1980s, utilities are obligated to support customers who opt to purchase natural gas from third party suppliers. The primary function of the utility is to re-deliver gas from the supplier to the customer’s facility.

What are Mcf, Btu and therms? How do I convert prices in Mcf to Btu’s and therms?

  • Btu – One British thermal unit (Btu) is the heat required to raise the temperature of one pound of water by one degree Fahrenheit.
  • Therm – One therm equals 100,000 Btu.
  • Mcf – Mcf is the volume of one thousand cubic feet of natural gas and equals 1.031 million Btu on average.

What happens if my supplier fails to deliver the natural gas my company requires?

The utility will step in and deliver the natural gas necessary to keep the customer in operation. Such occurrences rarely, if even, happen.

For how long of a term should I lock in?

Depending on budget requirements and market conditions, you can lock in for 12 or 24 months – or longer.

What is the volume of natural gas reserves in the U.S. and worldwide? Do we have enough to meet future needs?

Today, demand for natural gas is increasing worldwide, not just in the United States. Federal permits are in place to provide for the extraction and delivery of 3 trillion cubic feet per year of natural gas exports. As U.S. and worldwide demand increases, so could prices. Most industry experts forecast continued fluctuations in natural gas prices with a slow steady upward trend. Wind, solar, and other “green” resources are increasingly being used to create electricity but they are not able to generate enough power to keep up with the growth in demand. And, those resources are less attractive on a relative cost basis when natural gas prices are low.

What options (types of programs) are available for purchasing natural gas?

The pricing options consist of:

  • buying a fixed price which is an ‘all-in bundled price’ to be delivered to the utility,
  • buying the transportation (or basis) only and locking in the NYMEX commodity by placing triggers, etc.
  • buying portions of various monthly load requirements at various levels, providing the monthly total is large enough.