Natural gas prices this fall started skyrocketing and now January’s rate is markedly lower. Is this a temporary reprieve?
Last fall, I wrote a column as prices began to soar, advising it was time to jump off Dominion Energy Ohio’s monthly Standard Choice Offer, which is based on wholesale prices, and find a cheap fixed rate.
For several years, many have enjoyed the rate, also called the SCO, being at or near wholesale prices. But then prices started to jump in late summer and early fall. The new prices weren’t astronomical when you put them in perspective to gas prices in the last decade, but certainly were higher than what we were used to.
There was a combination of reasons why the prices were hitting 12-year highs, including national gas inventories being below the five-year average — which is a typical benchmark used and is what tends to make the markets nervous when inventories drop — with last year’s cold winter and warmer summer and more electric plants using natural gas contributing to lower inventory.
There’s also increased global demand and exporting of liquefied natural gas, and that drives prices up.
The U.S. Energy Information Administration in the fall had forecast prices would remain high through 2022 and perhaps come down later in the year.
The SCO in July was $3.77 per thousand cubic feet (mcf) and then began creeping up to $4.19/mcf in August and $4.52/mcf in September.
By the time I wrote my column in early October, the next October price announced was going up to $5.99/mcf (prices are usually set at the end of one month and go into effect in the middle of the next month). It continued to go up to $6.35 for November and dropped a little to $5.60/mcf for December.
But then January’s price, which was effective Jan. 12, came in at $4.17/mcf.
So what gives?
Natural gas prices are based on the New York Mercantile Exchange (NYMEX), which can be finicky and especially spooked by changes in weather, which increase or decrease demand for natural gas.
Do we live in an area that is affected by weather, I ask tongue-in-cheek?
Of course, before the Snowmageddon storm last week, we'd had a mild winter.
An expert weighs in
Here are some insights from Ella Hochstetler, the new director of regulatory and pricing for Dominion Energy Ohio, on what happened with the sudden drop in SCO pricing for January:
There were three drivers for the price decrease at the end of last year (Each month's SCO, including January's, is set at the end of the previous month.):
• U.S. gas production recovered to pre-COVID levels, and production steadily rose in November and December.
• Ohio had milder weather in December.
• Storage improved because of the combination of lower residential consumption in December and improved production for November and December. This significantly changed the U.S. storage outlook, improving from a level of 2.7% below the five-year average on Oct. 29, 2021, to 3% above the five-year average, according to reports.
Here are three drivers for current market prices, which are still low, but had a slight uptick, according to Hochstetler:
• U.S. gas production experienced a decline after the remarkable uptick in production at year end, according to reports.
• The 14-day weather forecast for Ohio and much of the East Coast is slanted toward colder-than-normal temperatures.
• On the plus side, storage currently remains at healthy levels. However, current price is factoring in higher daily premiums compared to the last few weeks due to the anticipated heavy withdrawal of storage expected over the next two weeks because of forecast colder weather.
Going forward this winter:
• Although we’ve seen significant reduction in price fluctuations this winter, that can change quickly with extended cold weather such as polar vortex air.
• The global demand for LNG (liquefied natural gas) is expected to continue into the summer.
Summer 2022 and calendar year 2023:
• Although we’ve seen The U.S. Energy Information Administration projects prices to remain flat for 2022 and decline in 2023 due to an increase in production.
So what should you do?
As always, this isn’t a one-size-fits-all decision since many of us are on different contracts depending upon when you made the switch and whether you went with a community bulk-buying or aggregation group, or chose your own selected fixed-rate plan.
In October, I was able to snag a really good price of $2.49/mcf fixed for 11 months with a $50 cancellation fee through Ohio Gas & Electric. I wasn’t sure how long that web-only offer for new customers was going to last. It seems a few other readers were also able to get it, but by the next week, the best rate I could find was in the $3/mcf range. As weeks passed, those rates disappeared, too. Lately, I’ve told people that the cheapest fixed rate available is Mercury Energy Ohio at $4.58/mcf for 24 months with no cancellation fee. You may not want to stay for 24 months if prices come down.
With January’s SCO price of $4.17/mcf, if you haven’t made the switch away from the SCO or you are on a community aggregation that is based off the SCO — such as Akron — you might want to wait and see what happens with February pricing since it takes up to two months to complete a supplier switch.
Akron’s aggregation price was $3.09/mcf through November and was going to closely mirror the SCO from December 2021 through April before becoming a fixed rate of $4.06/mcf from May 2022 through November 2024.
I had expressed concern about taking a plan that mirrored the SCO going into the winter when prices were beginning to soar.
One reader asked me recently what he should do since he had been out of town when the aggregation opt-out letters came, so he was automatically included in the Akron plan.
I told him to watch the prices and then decide because it’s hard to know if January’s $4.17/mcf SCO price is a temporary blip, but it’s also hard to suggest signing up for a more expensive $4.58/mcf fixed rate when he might be able to ride it out until the Akron plan changes to the May fixed pricing of $4.06. He has already paid higher prices during some of the winter months with the higher SCO prices, but will also benefit from the low January SCO price.
There are also a lot of readers who live in a NOPEC community, which is a large aggregator with more than 430,000 gas customers in Summit County (including Cuyahoga Falls and many northern communities as well as some in Medina and Portage counties).
NOPEC’s standard program rate is the default for its gas customers unless they specifically request either the group’s variable rate, which is 2 cents below the SCO, or their fixed rates (currently $4.25/mcf fixed for 24 months or $4.40/mcf fixed for 12 months).
The program rate in October was $4.75 and is currently $5.23/mcf.
If you’re in a NOPEC community, you might consider switching to one of the fixed rates if you don’t like the program rate. Or you can consider the variable rate, but again, that will depend upon what happens with the SCO.
For those who want to lock in to that Mercury Energy Ohio rate of $4.58/mcf fixed for 24 months with no cancellation fee, you can sign up at www.mercuryenergyohio.com/dominion-energy-ohio-res or by calling Mercury at 800-975-6372 as long as the rate is available.
Rates from marketers do always change, so you can see if that is still the cheapest rate by going to the Public Utilities Commission of Ohio’s Apples to Apples chart, which can be found at www.energychoice.ohio.gov or by calling 800-686-7826.
Moving forward, I will keep an eye on prices and I often update my online Utility Guide, which includes a lot of information about natural gas and electricity pricing. That can be found at www.tinyurl.com/UtilityGuide.
Beacon Journal staff reporter Betty Lin-Fisher can be reached at 330-996-3724 or email@example.com. Follow her @blinfisherABJ on Twitter or www.facebook.com/BettyLinFisherABJ. To see her most recent stories and columns, go to www.tinyurl.com/bettylinfisher.
This article originally appeared on Akron Beacon Journal: Betty Lin-Fisher: Do a price checkup with the January slump in natural gas price