Natural gas prices dropped, but for how long?By DAVE SOLOMON
New Hampshire Union Leader
February 21. 2015 10:23PM
With so much attention paid to the impact of natural gas prices on electricity costs, very little has been said about the 20 percent of New Hampshire households that heat with natural gas. Those home heating rates have been fairly stable, but that could change as February is going into the record books as one of the coldest months in recent history.
The two major utilities for gas home heating in the state, Liberty Utilities and Unitil, actually made slight reductions in their rates over the course of the winter, as the price of natural gas on the wholesale market defied expectations and declined significantly over the same periods last year.
But that trend may be over.
Liberty Utilities serves about 87,000 customers in the Merrimack River Valley from Nashua to the Lakes Region, with a few more in Berlin. Unitil or Northern Utilities serves about 29,000 gas customers in the southeastern and Seacoast areas.
Both are regulated by the Public Utilities Commission and can pass along to consumers only what they can prove they paid for gas, either on long-term contracts or on the spot market.
The basic unit for natural gas consumption on a consumer bill is the cost per therm, similar to the cost per kilowatt hour on an electric bill. While the cost per kwh in some cases has gone up by 50 percent or more compared to last winter, the cost per therm has not varied nearly as much.
That’s due in part to the fact that natural gas providers can respond more quickly to changes in the market price of natural gas than can electricity providers. The electric utilities set rates every six months — once for the winter season and once for spring and summer.
Once set, those rates are locked in until the next regulatory review.
Natural gas utilities are allowed to make adjustments up or down, month to month.
“The vast majority of our supply is pre-purchased,” said Unitil spokesperson Alec O’Meara. “But there is a small amount that is based on the wholesale market, and that piece, if there is a change in that, there is an opportunity to do a midseason adjustment.” Body Crosshed/Xhed: No character style: Declining price
As of Nov. 1, Liberty was charging $1.16 per therm — a winter rate based on what the company had to pay in the dreadful winter of 2014.
“The rate that we set in November was accurate at the time, but the market rate that we’ve been able to get as we’ve gone along during the winter has gotten a little lower, so we’ve adjusted the (consumer) rate accordingly,” said Liberty spokesperson John Shore.
The Liberty cost per therm went down to $1.06 on Jan. 1, and down again to $0.92 on Feb. 1.
“There are still winter months to go, so it may go back up again,” Shore said. “We’ll have to see how that goes.”
Unitil’s cost per therm followed a similar pattern this year, going from $1.10 on Nov. 1, to $1.05 on Jan. 1 and $0.96 on Feb. 1.
The decline in price over the course of the winter so far is the opposite of what happened last winter. The mild 2012-13 winter triggered a Liberty rate of $0.89 as of Nov. 1, 2013, which spiked to $1.01 on Jan. 1, 2014, and then to $1.11 in February 2014.
Natural gas for home heating is obviously affected by variations in the market price, but not to the same degree as electricity prices.
“Whenever anyone is talking about (increases in) electric prices, the cause of that is natural gas pipeline capacity and the constraints on that,” O’Meara said. “But that doesn’t have the same impact on what’s going on in the natural gas heating market, and that’s because heating utilities are the first people in the chute when it comes to buying supply.
“We’re in there first, getting pre-buy, and not dealing with the same capacity constraints that are affecting power plants,” he said.
The portion of the heating utility’s gas supply purchased on the spot market is small, so consumers don’t reap the full benefit when the market goes down, but they don’t pay such a steep price when it soars (as it did last winter). Body Crosshed/Xhed: No character style: Many factors at play
A combination of factors kept natural gas prices much lower than anticipated on the spot market in December and January. Demand was down due to fairly mild temperatures in the first two months of winter.
The operator of the New England grid, ISO-NE, helped power plant owners stockpile oil and liquefied natural gas as part of a “winter reliability program” introduced after recent price shocks. The dropping price of oil gave many energy buyers a cheaper alternative, and weakening economies in Europe and Asia suppressed demand.
“It has really been a tale of two winters,” O’Meara said.
But then February hit, with record low temperatures, record high snowfall, and all the complexities in transporting fuel associated with “SnowMageddon.”
According to ISO-NE, the price advantage over last year has been slowly eroding as the winter wears on. On Feb. 1, the real-time energy market price for natural gas was almost 69 percent lower than the same week last year, but by Feb. 8, that difference had dropped to 48 percent.
The peak load demand for Feb. 1 was 3.8 percent below the same week last year, while just a week later, on Feb. 8, it was 3.4 percent above last year.
When it comes to energy prices, it seems the winter giveth, and the winter taketh away.