Locking in Natural Gas Prices (NE Ohio)

[Bruce Amacker]

My local supplier (Columbia Gas) is offering to lock in my gas price at .497/CCF through Sep '16. Doing research on this leads me to neverending documents and graphs that don't really answer my question. Is this something to do or not? I know forecasting gas prices is like forecasting the weather, but I though I'd ask anyway. What are you guys doing?

Thanks!

 

[reader2580]

My guess is that the price they are offering is somewhat above current rates?

They would be gambling that prices won't go higher and you're gambling that prices will go higher. The natural gas company has probably already locked in supplies for at least part of this winter and they know what the prices will be.

There is a chain of gas stations in St. Cloud, MN that offers fuel banking. You prepay for gas at a price that is quite a bit higher than current prices. You then get gas at the prepaid price until your prepaid gas runs out. It would make sense to not use the prepaid gas until prices increase above what you paid for the prepaid gas.

 

[madison069]

The way the price is for natural gas right now, we are expecting the price to drop more in the oil field.

But you just never know!

 

[kbs2244]

You are betting against the pros

 

[CNGsaves]

Without doing some trending, my gut reaction is that you will lose on that deal given the current world OIL GLUT which will have negative pressure on NG prices. There could be some upward pressure on NG pricing with transition from coal powerplants to NG, but the supply of NG in USA is just MASSIVE.

I don't see commodity NG price moving up in the short-term, unless something crazy happens like Russia not selling their massive NG for some reason. Also have to consider that "open trading" for Iran means all their massive NG supply is available for sale to other countries.

On side note, not too fond of Columbia Gas as they abandoned their fleet of Natural Gas fueled vehicles couple years ago.

 

[aafadca]

Without doing some trending, my gut reaction is that you will lose on that deal given the current world OIL GLUT which will have negative pressure on NG prices. There could be some upward pressure on NG pricing with transition from coal powerplants to NG, but the supply of NG in USA is just MASSIVE.

I don't see commodity NG price moving up in the short-term, unless something crazy happens like Russia not selling their massive NG for some reason. Also have to consider that "open trading" for Iran means all their massive NG supply is available for sale to other countries.

On side note, not too fond of Columbia Gas as they abandoned their fleet of Natural Gas fueled vehicles couple years ago.

My gas company in Virginia is doing the same thing. But I'm thinking along these same lines so I think I'll keep it like it is for now.

 

[gdh33]

NG prices are really low right now. But I don't see them going up anytime soon. Lots of NG has been able to be extracted cheaply due to fracking. Many decades of gas left. But think of this as insurance, you pay a premium but it could pay off if something happens.

 

[MikeF2316]

This is the way I look at these fixed price contracts - There are 3 things that can happen:

1. Prices stay relatively constant. You end up paying a little more.

2. Prices go way down. You end up paying more.

3. Prices go way up. They declare bankruptcy. You end up paying more.

 

[DC73]

I used to have to prepare annual budgets using estimated natural gas prices. One day in a board meeting, one of the directors asked me why I couldn't be more accurate with my gas price forecasts. I told him if I could accurately predict the price of natural gas, I wouldn't be standing before him giving a budget presentation. Instead I'd be on my own island drinking margaritas and counting my fortune. He laughed and no one ever asked me the question again.

That said, research hedging in the commodities market. There are ways to lock in prices. A seller can protect themselves from downturns in the market at the expense of limiting the upside potential. A buyer can do just the opposite.

In the end, it's a zero sum game, if somebody wins, somebody else loses.

DC