Natural gas prices on rollercoaster ride

Blue flames from gas stove burner.

By Michelle Price
UCBJ Managing Editor

COOKEVILLE – Many local residents have noticed that their natural gas bills are up as much as 29% over last year, leaving some to wonder if the on-going Russian invasion of Ukraine will drive prices even higher. The answer is possibly yes, but not because we are getting our gas from Russia.

According to local gas experts, the United States is a net positive exporter of liquified natural gas (LNG) to other countries, including those in Europe based on the fact that there is more natural gas in the United States than anywhere else globally.

The increase in the cost of natural gas domestically has primarily been driven by policies of the new administration, according to these insiders. For example, the policy of trying to move away from all fossil fuels (to be in line with policies like the “Green New Deal”) has included embargos on producers to decrease output. 

“It’s basic economics,” said a local source who did not want to go on record due to politics. “Both supply and demand have changed. The increased costs on producers and their additional taxes have resulted in increased wholesale costs for natural gas.”

The price that an end-user pays for gas is comprised of two parts. Distributors pay the price for the gas, and additionally, they pay for capacity in the pipeline to bring the gas here. 

Cookeville Gas Director Jeff Mills explained, “The capacity charges are fixed costs that are contracted on a yearly basis. During the summer, annual contracts are set for the transmission capacity for the next year and distributors have to purchase enough capacity to meet the peak demand in winter.” 

The price of the gas itself is variable. Natural gas is a commodity, and its price is set by the stock market.

A year ago, Mills pointed out, natural gas got down to a low of $1.60 and averaged around $2.70. But on Friday, February 25, it was $4.52.

From the lowest month last year to the highest month, gas prices have basically doubled.

Basically, the price of gas changes month to month. Actually, it can technically change hour-to-hour. The problem is that in a typical year, it typically changes a penny or two up or down. But over the past six months, the market is seeing as much as 30 cents one way or the other at any given moment. 

“We pass along each month the cost of our natural gas,” said Mills. “If it goes up, we go up. If it goes down, then we go down to the customer. We have a flatline of what we have to make. We’re not in it to make any money, but we have to cover our operating costs.”

Cookeville Gas bills are comprised of two parts, the base rate set that covers their transportation cost and the cost of the actual gas. There is also a gas adjustment each month and if the cost of gas goes up, they raise the adjustment; conversely, if the cost goes down, it is lowered. This is done so that the rate stays as consistent as possible for the customer.

The alternative is during city budget time, the gas department could guess at the cost of gas for the next year – an impossible task.

The gas department does have the ability to lock in a set amount of the gas needed at a guaranteed price. However, if the price of gas goes down, they are locked in at that higher cost. 

“I have some gas that I contracted for two years ago at $2.98,” Mills explained. “That was a gamble because at the time, gas was selling for $3.50, and we signed a contract for 20% (which is typical) of our normal load. It got down to $1.60 after that, but now it is up over $5.00, so it balances out and helps us keep an even keel for the customer.”

Which raises the question based on the current situation: does the city have plans to start locking in gas for future years? 

“We always are looking at that but are not going to lock in any right now because it is so volatile,” said Mills. “Gas is projected in the future months to come back down some, so we are going to keep an eye on it, and when it comes back down into our range, we probably will lock in a little. But right now, I don’t see how it would benefit us any to lock it in.”

Michelle Price is the managing editor of the Upper Cumberland Business Journal and can be reached via email. Send an email.

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