Fluctuation in Natural Gas Prices
Natural gas is one of the basic commodities of life. It is supplied to homes and industries through pipelines every day and transported to millions of consumers. The gas supply either comes from domestic gas well production, withdrawals from storage facilities or imports. Natural gas supply fulfills the demands of customers during the summers and even excess natural gas is produced which is stored in the facilities. During winters, the demand for natural gas exceeds the supply and so, the withdrawal from storage fulfills the demand.
Natural gas is consumed by residential, industrial, commercial and electric utility customers. Though residential and small commercial customers use relatively lesser gas, they pay a higher cost per unit of gas. The industries and electric utility customers use gas in higher volume but pay a lesser price per unit. The natural gas prices depend on upon the volume of gas produced and the following factors:
- The cost of transmission- from pipelines to local area of the customer
- The cost of distribution- from local area to user’s facility
- The cost of natural gas itself
Usually, the cost of the gas itself is even lesser than half of the price paid by the residential and commercial customers. The cost transmission and distribution is fixed, regardless of the consumption. So, sometimes it may happen that even though the demand for gas declines but the cost per unit gas increases. That’s why sometimes, in the summers, a total natural gas bill is usually less but the cost of gas per unit is high. This is to account for the overall expenditure incurred for the supply of the gas. If the demand level is higher than the production level, this also causes an increase in the rate of natural gas.
The reasons behind the fluctuation of natural gas prices are:
- Severe or prolonged winters cause an increase in the demand for gas
- Diminishing volumes of gas in storage facilities during the winter season
- Production difficulties may cause reduced supply (e.g. breakdown of equipment, a fault in machinery).
- Constraints of pipeline delivery system
uring the past years, the natural gas prices are fluctuating too rapidly. The impact of these fluctuations on the customers varies according to the needs. The prices of residential customers are more stable than those of industrial users. That is because residential customers pay a bill every month and see quite less variation because prices don’t vary as much as daily. On the other hand, electric utilities and large consumers, who have short-term contracts without fixed prices, suffer the most due to price fluctuations. These customers make such arrangements because in this way they can switch to other fuels for cost savings.
During the past years, there has been a decline in the natural gas prices. There are various reasons including the increased competition and efficiency because of the regulatory restructuring of the gas industry. Another reason is the pressure due to the competitive prices of the lower petroleum products. The innovation in the gas industry and pipeline system, and the improved technology has also helped to increase the production and manage the natural gas prices. How To Sell for more detail about technology click here.
Written By: Aleesha Sabir