How Rates Are Set

How is the price of natural gas determined?

Natural gas is a commodity traded on the open market and its price is not regulated. The price goes up and down based on the balance between supply and demand across North America. There are various factors that influence these price fluctuations. Supply is affected by production and gas stored in inventory and demand is affected by weather and other factors. You can reference the market price of natural gas quoted on the New York Mercantile Exchange (NYMEX) in various publications, such as The Wall Street Journal, Platts Gas Daily, Inside FERC, and others.

What is the "spot market price"?

The spot market price is the cost to purchase natural gas on the open market on any given day. Natural gas is traded at a number of market points, known as hubs. For most consumers, the easiest way to track the market price of natural gas is through the New York Mercantile Exchange (NYMEX). The business section of most newspapers, such as The Wall Street Journal, publishes commodity prices. Also, for current information on Natural Gas Costs and Futures go to: http://www.eia.doe.gov.

Why does the spot market price for natural gas fluctuate so much?

Several key factors affect the price of natural gas:

Storage: Natural gas is injected into the pipeline system throughout the Continental United States and delivered to millions of customers all over the country. The majority of natural gas comes from domestic production, with the remaining supplies imported mainly from Canada, and storage facilities located throughout the United States. The domestic production and imported natural gas are enough to satisfy the summer demand, but during the cold winter months additional supplies from Liquefied Natural Gas (LNG) and storage facilities are necessary to fill the increased demand. Therefore, if the stored levels of gas plus the current production do not appear to be adequate to meet the current demand, prices may increase.

Production: The price of natural gas is affected by the volume of natural gas being produced, the cost of finding and producing natural gas, and the costs associated with bringing it to market. When prices are high this tends to encourage exploration and production of natural gas, which results in additional supply coming on market. Increases in supply will catch up to demand and will lead to a drop in prices, over time.

Weather: Forecasts are used as a guideline for the amount of natural gas injected into storage facilities. If the forecasts call for a cold winter, then the level of stored gas should be higher than normal. However, forecasts are usually uncertain and changes to key factors used to establish the levels of storage could significantly affect the market cost of natural gas. Weather forecasts and storage levels are affected by the following:

  • Prolonged cold spells or below normal winter weather.
  • Supply problems may occur when high cost competing fuels, non-natural gas power generating facilities, switch to natural gas, thus increasing demand.
  • Any disruption of the pipeline delivery system or production facilities can affect the availability of delivered gas.

When spot market prices go down do consumer rates go down?

Not immediately. Our rates are not directly tied to the spot market price. However, under the monthly cost of gas mechanism, each month the cost of gas will change to reflect the estimated future’s price for that month.

About Gas Natural, Inc.

Gas Natural Inc. (NYSE MKT: EGAS), a holding company, distributes and sells natural gas to end-use residential, commercial and industrial customers. It distributes approximately 26 billion cubic feet of natural gas to approximately 68,000 customers through regulated utilities operating in Montana, Ohio, Pennsylvania, Maine, North Carolina and Kentucky. The Company’s other operations include natural gas production and natural gas marketing. The Company's Montana public utility was originally incorporated in 1909.

Gas Natural‘s strategy for growth is to expand throughput, particularly in the Maine and North Carolina markets, while looking for acquisitions that are either adjacent to its existing utilities or in under saturated markets. The company’s common stock currently trades on the NYSE MKT under the ticker symbol “EGAS.”