Natural Gas and the Cold Snap

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Wonder what this cold weather is doing to the cost of heating across the nation?Fortunately, the fracking boom is helping to keep the lid on natural gas prices.

Wonder what this cold weather is doing to the cost of heating across the nation?

Fortunately, the fracking boom is helping to keep the lid on natural gas prices.

In a Tuesday Wall Street Journal article, columnist Russell Gold points out that, while natural gas prices have risen because of the higher demand for heat at this time of year, they have not jumped nearly as much as they did during a cold snap of the previous decade. About half of the nation’s customers rely on natural gas for heat, and the past week’s deep freeze saw prices up 40% from the beginning of September (almost a five month period) due to higher demand. Compare that with December 2000, when prices doubled in just 2½ months.

Why the difference? Gold explains,

“The difference today is the U.S. energy boom, which over the past few years has created vast supplies of the fuel, in part through hydraulic fracturing. As a result, the natural-gas market isn’t gripped with fear that refilling storage could take years, a concern behind panicky trading a few years ago that sent gas prices over $10 per million BTUs.”

In the short run, cold weather and increased demand have created more price volatility for natural gas. But knowing that there’s a lot more fuel to draw from through fracking has kept people at greater ease. Common utility regulations have also tempered short run price swings.

“This year, some customers will get pinched by higher prices but there won’t be a heavy wallop. Many states require that utilities lock in what their customers pay for natural gas and electricity for months at a time. The companies determine those fees from the prices they pay for gas under long-term contracts, which are less susceptible to price swings.”

The result? Gold says higher prices in the short run incentivize drillers to drill, and stability over the long run encourages demand.

It’s interesting how the market works.

>>Source: Gold, Russell. “Fracking Boom Keeps Home Heating Bills in Check.” The Wall Street Journal. 28 Jan. 2014.

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