Home and business owners who use natural gas have had a bargain over the past several years. Prices for that fuel have been low. Utilities do “fuel adjustments” for their customers based on the cost of fuel, so customers have had the benefit.
Think of fuel adjustments at the utility like the cost of running your automobile. Certain costs of your car, and the utility’s plants, will always be there, like maintenance. If the cost of gasoline is low, the overall cost of running your vehicle is low. Same with natural gas used to make electricity. When gas is low, costs to make power are lower.
Is the bargain over for natural gas? Some think so. That can impact the cost of power.
A headline in Oil Price magazine caught our eye: Why Natural Gas Prices Are Set To Soar.
Markets make changes happen. Supply and demand. Several factors will make a mark on the natural gas market according to the Oil Price article.
- Lower domestic gas production
- Disrupted operations along the Gulf Coast from storms
- Recovering global gas prices in Europe and Asia, which are export partners
- Higher demand coming in the for winter
Add to that a regulatory environment that is challenging for new natural gas pipelines to bring in product. Recall that recently Duke Energy and Dominion Energy canceled the Atlantic Coast Pipeline into North Carolina.
One analyst said it well: “Low prices or not, long-term demand growth in North America and globally remains in question, and recent cancellations of pipeline infrastructure and LNG projects have increased downside risks. If the gas has nowhere to go, it won’t be extracted…”
Natural gas market has been volatile recently. It is a push and pull on supply and demand.
“On the demand side, winter 2020/21 is projected to be ‘basically flat’ compared to last winter … with liquefied natural gas exports and higher domestic power sector loads being offset by weaker commercial and industrial demand because of Covid-19,”said the US Energy Information Administration.
Supply is a big part of the analysis. “This week’s rollercoaster ride of U.S. natural gas prices was indicative of a demand/supply picture in a so-called ‘shoulder season’ when power demand for air conditioning begins to wane, but demand for heating is not there yet. So prices reacted to the immediate drivers—storage, feed supply for LNG, and storm-induced shut-ins,” said Oil Price.
These are the debates that “make markets” as some say. You’ll note that I am not making any prediction. I recall about 1981 when a barrel of oil was $34, skyrocketing from $7.70 in 1975. A petroleum person said that oil will be $100 a barrel (1980s dollars) and too valuable to burn in cars soon. By the mid-1980s a barrel of oil sold for single digits again. I learned from that.
Consumers will just have to wait and see what happens and for utilities to adjust accordingly.