A lot of customers have been asking me lately why natural gas prices are so high. Here are my thoughts on the current state of natural gas prices.
Natural gas costs have increased more than 300% since the start of the Covid pandemic in 2020. A convergence of key changes in supply and demand have aligned to cause this unprecedented rise. In August of 2020, our wholesale cost for natural gas was just $1.854 per Dth (Dekatherm). By August of 2022, it was $8.687! We are keenly focused on managing these volatile costs.
Let’s take a closer look at what’s contributing to these 15-year high prices and the steps we are taking to help keep costs down:
1. National and Global Economic, Political and Weather Conditions
Natural gas prices paid by Georgia rate payers are not only impacted by local factors like weather and economic growth, but we are also affected by national supply and demand, government policies, and indeed international economies. An extremely hot summer in other states can still affect our pricing even though here in Georgia our summer was closer to normal.
2. Higher Need for Natural Gas to Produce Electricity
We are seeing historic demand from natural gas-fueled power generators. With coal plants continuing to be decommissioned, natural gas is the next best available fuel to generate electricity. Natural gas is now responsible for 40% of America’s electricity. In addition, drought conditions in the west have limited hydro-electric generation, thereby adding more pressure to natural gas as a fuel.
3. Growing Domestic Demand Outstripping Capacity and Delivery Infrastructure
Supply and the capacity to deliver that supply is falling behind demand. As more homes and businesses are built without a comparable increase in production and transportation capacity, upward pressure on price is inevitable. Government agencies have also been very slow to respond to, if not ignored, requests for increased pipeline infrastructure.
4. Dwindling Cheaper, Stored Reserves
Over the past 6 months, many natural gas suppliers have used cheaper reserves to meet the needs of their customers while trying to keep costs low. Consequently, storage facilities that normally get filled during the summer are at 5-year lows in terms of inventory. The market has responded by anticipating a lack of reserves for this winter, which further supports price.
5. Growing Exports
European prices are 10 times that of our domestic natural gas prices and the US is now the leader in LNG (Liquified Natural Gas) exports, shipping approximately 12 billion cubic feet per day. With such a huge price disparity, more export facilities are under construction and exports will only increase. More natural gas being shipped overseas means less supply for Georgians which further adds pricing pressure.
All these factors play heavily into what Georgians pay for their natural gas. Pipeline outages in Louisiana, lack of wind for turbines in Texas, or a new LNG export facility all directly impact our cost to serve our customers.
Our Steps to Manage Costs
As we expect more volatility and price strength until winter forecasts and demand become clearer, True Natural Gas is taking the following steps to help keep costs down:
- Looking for ways to increase revenue by selling unused assets
- Actively soliciting alternative suppliers and transport
- Maximizing inventory for an unexpected winter
- Maintaining a streamlined staff and work processes for maximum efficiency and customer service
For tips on how to save on energy costs in your home, please see our website here.
Daniel N. Hart
President & CEO
True Natural Gas