When to lock in natural gas rates
Shopping for natural gas rates is tricky given the unpredictable nature of the market. Prices can fluctuate dramatically. In the past year, natural gas prices in the US have reached as high as $6.28 (October 2021) and as low as $2.49 (April 2021).
Factors such as COVID-19 restrictions, LNG markets abroad, weather, and international affairs can all impact the price at which natural gas trades on the market.
When is the best time, then, to lock in natural gas rates for your business? We will discuss things to consider when searching for natural gas prices so you can lock in the best rate for your business.
The meaning of “locking in” natural gas prices
“Locking in” natural gas prices means entering into an energy contract where the supply rate of natural gas is fixed, ensuring you pay the same supply rate for your energy use for each month. Thus, your supply rate will not be affected when prices in the current market change during the course of your contract.
Locking in natural gas prices gives you the benefit of a stable rate with your energy contract. Fixed-rate plans offer more predictable prices at the end of each month. Some suppliers allow businesses to secure fixed-rate contracts for up to two years.
Keep in mind that the longer the term to which you want to commit, it is all the more important to enter the deal when prices are at their lowest.
The natural gas market is cyclical
Demand for natural gas ebbs and flows throughout the year. As demand increases, so do prices.
Businesses and homes generally use more of the resource in the winter months to heat their premises. Similarly, they will rely on air conditioning during hot summer seasons. These are the high-demand seasons.
Low-demand season generally runs during milder seasons such as March through April and September through October – also known as the “shoulder months”.
Understanding the seasonality of the natural gas market can help you determine when to lock in natural gas rates for your business. Look to secure your rates during low-demand periods.
What causes energy price fluctuation?
- Seasonality – As discussed above, natural gas demands during peak seasons will increase energy prices; prices will fall during low-demand seasons.
- Severe weather – Hurricanes, tornadoes, floods, and other severe weather impact natural gas production. When natural gas production is interrupted during these events, you can expect the price per therm to fluctuate. Hurricane Nicholas is a recent example of this.
- Natural gas reserves – Natural gas reserves in America are limited, despite the fact that our country produces most of the gas that it consumes. When supplies dwindle, the price of natural gas often rises.
- Natural gas production – Prices rise when companies must spend more to produce natural gas. Conversely, lower production costs means lower prices.
- Confidence of the consumer – The confidence of the consumer influences the price of energy, too. Consumers feel more confident to spend on natural gas when the economy is strong.
- Fuel competition – Natural gas prices compete with the price of other commodities such as coal, petroleum, and alternative fuels. Energy users may switch to other fuel types if those prices are lower. This creates lower demand for natural gas, creating lower prices.
- Government regulations – Taxes and environmental regulations imposed by the government on the energy sector influence natural gas prices. The government opening new sites for natural gas extraction affects prices, too.
- International affairs – Foreign affairs play a part in domestic natural gas prices. This is certainly the case when international conflicts or restrictions disrupt foreign exports and imports.
Let us help you lock in the best rates
The energy experts at NGP Americas are ready to help you navigate the energy market and land you the best natural gas rates for your business.
Give us a call at +1 972-331-0039.