Learn About Natural Gas Rates
Natural gas prices are based on supply and demand in the market. This means that changes in supply or demand for natural gas can result in a change in prices for this resource in order to bring supply and demand back into equilibrium. Fluctuations in the market can directly impact your natural gas rates so it’s important to understand what factors contribute to changes in natural gas prices.
Supply and demand impacts prices
According to the U.S. Energy Information Administration (EIA), there are four supply side factors and three demand side factors that may affect natural gas prices.
- Variations in the amount of natural gas produced
- Volume of gas imported and/or exported
- Delivery constraints; and
- Amount of gas in storage facilities.
Supply factors that may affect prices include:
- The economy
- Seasonal weather changes; and
- Oil prices
Demand factors that may affect prices include:
During severe weather it is common to see disruption in the market. During such high demand period, storage inventories of natural gas may be below-average causing pressure on prices. Also during inclement weather natural gas production could be shut down causing a shortage of supply and increased prices.
Overall, increases in natural gas supply typically lead to lower prices, whereas decreases in supply tend to result in increased natural gas rates.
Components of natural gas rates
Rates for residential consumers include two main costs: commodity costs and transmission and distribution costs. The commodity cost is the cost of the resource itself. The transmission and distribution cost is the cost to move the natural gas from where the resource is produced through pipelines to a utility company and then from the utility to a customer’s home. In addition to these costs, a number of taxes are also included in rates.
Many consumers want stability when it comes to rates and monthly bills. Due to supply and demand and the factors listed above, however, price changes are inevitable. One way to protect your rates from monthly changes is to sign up for a fixed rate supply service plan. Seasonal temperature changes and the market won't change your rates, therefore you can better predict your bill and not worry over the market or weather conditions.
As demand for this natural resource continues to increase, prices may continuously change. Stay informed of the factors that affect prices so you know when to expect rate changes.