Market volatility plays large role in natural gas price hike
Sep. 8—Earlier this week, National Grid estimated that customers can expect to pay 39% more over last year for heating their homes with natural gas for the upcoming cold weather season. That percentage, calling for an average winter heating bill of $943, brings chills to household budget planners.
The 39% translates to about $263 more than last winter over the five months. National Grid says $231 of that increase is attributed to higher wholesale supply prices. The remaining portion of the increase is related to delivery price increases approved as part of the company's multi-year rate agreement and other customer bill surcharges.
There are two components of customers' bills relating to natural gas: energy supply and energy delivery. The supply portion, which includes the actual cost of the natural gas commodity, is set to the marketplace and is passed on directly to customers without markup.
Overall, the U.S. overall is consuming more natural gas. In late August, the U.S. Energy Information Administration reported U.S. natural gas price volatility (a measure of daily price changes) reached its highest level in 20 years. Volatility factors range from changes in inventory levels to weather.
Also in August, the EIA reported that from July 1 to July 29, natural gas prices increased by almost 50% because of continued high demand for natural gas from the electric power sector.
"In July of this year, we saw record-setting levels of demand for power burn," said Juan Alvarado, American Gas Association's director of energy analysis. "This year and the past couple of years, we have seen demand to be very high. A lot of the gas is being used for power burn to generate electricity."
Mr. Alvarado and others quoted in this story spoke Tuesday in a conference call arranged by National Grid.
"Prices are very high right now," Mr. Alvarado said. "Fundamentals don't explain all the current prices, but they do explain a significant amount of those prices."
The AGA analyst said that the Northeast is experiencing higher natural gas prices than the rest of the country "due in part because of a lack of infrastructure," or gas pipelines.
"Additionally, as we have moved away from coal generation, electricity prices have come more tightly correlated to natural gas prices," Mr. Alvarado said. "As natural gas prices go up, so will electricity prices."
"Like natural gas, electricity prices are also dictated by market condition," said Melanie Littlejohn, vice president of customer and community engagement for National Grid.
For electricity, National Grid estimates that its customers in its Central New York residential customer area (which includes NNY) are forecasted to pay about $22 or just under 5% more than last season, with $11 of that increase attributed to higher supply prices, and the remaining amount associated with a regulatory-approved delivery price increase and other bill surcharges. The forecast is based on average electricity use of 600 kilowatt-hours per month.
The region's natural gas customers are accustomed to swings in what they pay for natural gas.
"It's extremely high," Kellie Smith, National Grid's director of New York pricing, said of the company's latest cost estimate for winter heating. "The only year that we've had in that time period that was higher was back in 2006, which was around $984 for a total winter bill."
But with inflation, that $984 would be $1,446 in today's dollars.
On Wednesday, the EIA reported U.S. natural gas inventories ended August at 2.7 trillion cubic feet, which was 12% below the five-year average.
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The five-month home heating season runs from Nov. 1 to March 31.
National Grid Consumer Advocates work directly with customers to help them manage their energy bills. The advocates specialize in assisting income-eligible and vulnerable customers, aligning them with available programs and services offered by National Grid and local agency partners. They can be reached at 1-800-642-4272 or ConsumerAdvocatesUNY@nationalgrid.com.
