Natural Gas FAQ's

Numerous underlying factors affect natural gas prices. Depending on the factor- for example, production, imports, demand, oil prices, and natural gas inventories – each can apply either upward or downward pressure.

(Upward) Decreasing production – Total US marketed production of natural gas is projected to decrease by 1.1% in 2009.

(Upward) Declining Imports – Net imports of natural gas are projected to decline by 0.7% in 2009.

(Downward) Lower Demand – Total natural gas consumption is projected to decline by 2.2% in 2009.

(Upward) Higher Oil Prices – Some large volume customers (primarily industrial customers and electricity generators) can switch between natural gas and oil, depending on the prices of each. Because of this interrelation between fuel markets, when oil prices fall, the shift in demand from natural gas to oil pushes prices downward. Also, speculation from traders that the ‘economy is improving, thus demand is increasing’ can push the prices higher.

(Downward) Above Average Inventories – As of June 5, 2009, natural gas in storage was 2,443 billion cubic feet (Bcf) which was 21.8% above the 5 year average for that time of year.

Timing is critical. If there has been a mild winter overall, storage will be full, leaving low demand for refilling storage for the summer. This will impact the prices traded. Focus should be on the Feb-March timeframe. If the summer season remains mild, there is little demand for air conditioning, again, impacting the trading. Focus should be on Aug-September timeframe.

Since deregulation for natural gas was instituted by the Federal Energy Regulatory Commission (FERC) in the 1980’s, utilities were obligated to support customers who opted to purchase their natural gas from third party suppliers. The primary function of the utility is to re-deliver the gas that has arrived from the supplier at the utility receipt point to the customer’s facility.

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.

The utility will step in and deliver the natural gas necessary to keep the customer in operation. However, as the customer notified the utility that they would be purchasing their natural gas requirements from a third party supplier, there may be a penalty associated with the natural gas provided by the utility. The customer would be required to seek compensation from the supplier. However, as the local Public Service Commission governs the suppliers who are registered, such acts rarely, if even, happen.

Depending on budget requirements and market conditions, a customer could lock into a 12 or 24 month contract – or longer. Natural gas contracts usually begin with the month of November through the following October. This encompasses one winter period (November – March, 5 months) and one summer period (April – October, 7 months). Normally the most active trading is in the ‘prompt’ months of the NYMEX Futures Market, closest to the current period and can be the most volatile. The further out the contracts are traded, the less interest and liquidity there is, and the market prices are generally higher.

What is the volume of natural gas reserves in the US and worldwide? Is there enough to meet future needs?

• 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.