As we head into the winter heating season, consumers should be aware of various factors at play that will impact natural gas prices and potentially make their home energy bills go up this season.
Who is impacted by the natural gas price increase?
- Price increases in 2021 impact the nation. It’s not targeted to specific regions, investor-owned companies, marketers or municipally-owned gas systems. Price increases affect all natural gas customers in the United States.
Why the increase now?
Traditionally prices are dictated by supply and demand, and today’s circumstances are putting an unusually high burden on natural gas supplies. These market forces will affect the price of the natural gas you will consume in your home this winter:
U.S. inventory is lower than last year. Several factors go into this:
- In the past, when prices edged higher due to rising demand, U.S. producers ramped up production to help keep pace, but they have not been drilling despite the current higher prices. As our economy slowed during the worldwide pandemic, producers eased off production due to the lower demand. They are taking a disciplined approach and are reacting to demand more slowly. And even if producers responded to rising prices and increased their drilling, those efforts would not bring natural gas to market in advance of this winter’s heating season.
- Currently U.S. production is unchanged from last year. This is expected to eventually change, but not anticipated until mid-2022.
- Hurricane Ida disrupted production from the Gulf of Mexico which is still impacting supply levels and remains offline.
Larger Demand for Natural Gas
- The worldwide pandemic saw a decline in industry and commerce, but as business returns to pre-pandemic levels of activity, they are ramping up demand quickly.
- Worldwide the demand for natural gas is extremely high as countries move away from coal to comply with new environmental standards.
- In recent years, the U.S. has become an exporter of Liquefied Natural Gas to other nations and these exports are at record highs – currently 38% higher than last year. In Europe and Asia, prices are higher, and those countries are leaning on U.S. natural gas exports to fill their needs, leaving less for our consumption.
- U.S. storage inventories are well below last year’s levels (17% less this year over last year), due in part to the unprecedented winter storm Uri in Texas earlier this year, and surprisingly high demand for power generation this summer.
- The higher power generation demand of natural gas is due to lower than expected wind and solar generation and a hot summer. In the past, some generation would switch to coal or other alternatives and demand less natural gas but given the nation’s carbon reduction goals and the price of alternates this switch did not occur, putting an additional strain on natural gas demand this summer. And all of this higher demand for gas this summer means less was put into storage, so we are relying on real time production and its associated costs.
When will we see relief in price increases?
- Weather is a critical factor in winter pricing. The colder the weather is the more we could see continued higher pricing due to demand for natural gas. A milder winter may lend itself to some relief in the higher prices.
- U.S. production will have to increase for our country to start to see a shift in future pricing. It’s likely that production will begin to increase in 2022.
Factors that go into a customer’s natural gas bill
Natural gas bill is comprised of three components:
- the transportation of natural gas along the interstate pipelines – a federally-regulated and structured price;
- the local distribution of the gas to a home via the provider – a set administrative price to deliver the gas to the home, and
- the commodity price of the natural gas molecules used in the home for heating, cooking, water heating and possibly more – this cost tracks market conditions and fluctuates based on usage and supply and demand factors affecting the commodity price
How do I prepare for higher bills this winter?
Weatherization – start preparing your home to be as economical as possible. Consider installing new windows or doors or adding insulation or weather-stripping to drafty windows and spaces in your home.
- Install programmable thermostats and program them to lower the temperature of your home when no one is home and to warm up when everyone is home.
- Start saving now. Consider setting aside some additional dollars to cope with the possibility of higher bills this winter.
What does this mean for my natural gas bill? Let’s break it down...
- Average natural gas usage per year in Georgia for home heat and water heating: 50 mcf (by the way 1 mcf = 1,000 cubic feet)
- If the commodity cost increases for 12 months at $3.00 per mcf, then you’re looking at an annual increase of $150 (50 mcf X $3.00 = $150)
- Natural Gas Usage Breakdown – 70% of that natural gas usage is in the winter months for home heating
- How that breaks down: $25.00 dollars more per month during winter months when heating your home OR approximately $12.00 more per month.
*Usage is based on the average customer use in Georgia. Actual usage may fluctuate based on location, actual winter month temperatures, and household age, design and square footage.