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How Is Natural Gas Sold

February 20, 2020

If you live in a deregulated state, you have the power to choose a supplier for your energy needs, including natural gas. But how does that happen? What is the process for suppliers to sell natural gas and are there factors that impact how it all plays out?

How is natural gas purchased by suppliers?

Natural gas, much like electricity and other commodities, is able to be bought, sold and traded on the open market. In deregulated states, energy suppliers closely monitor energy prices and purchase natural gas for customers based on current market prices. This gives them the ability to sell natural gas at a locked in, often lower rate, than the utility.

According to the New York Mercantile Exchange (NYMEX), natural gas prices tend to be lower in March and April, making spring an optimal time to consider enrolling in a natural gas plan with a secure and locked in rate. You can check out price plans in your area here.

What factors affect natural gas prices?

The retail cost of natural gas can vary state to state and city to city. The factors impacting those variances the most are:

  • Distance the natural gas must travel
  • Capacity and availability of transmission pipelines
  • Volume of customer demand
  • Costs of distribution, taxes and other charges
  • State regulations
  • Number and availability of competing suppliers

Of course, supply and demand play a large part in the price of all commodities, including natural gas. An increase in supply and/or decrease in demand will typically result in lower prices while a decrease in supply and/or increase in demand can induce higher prices.

Similarly, higher prices which are less pleasing than lower rates, will reduce demand and encourage production. Lower prices will discourage production to help reduce the possibility of an overabundance of supply and keep the ratio of supply and demand more balanced.

Factors that affect supply and demand:

We know that supply and demand directly impact the price of natural gas. But what factors affect supply and demand? Let’s take a look:

  • Factors affecting supply
    • Production speed and ability – producing too much natural gas too quickly, or not enough at not a fast-enough pace will impact available supply
    • Amount of natural gas in storage – natural gas can be stored during periods of low demand, however, if there is not enough or too much natural gas in storage versus the speed and ability to produce natural gas, the supply may be too large or not enough
    • Natural gas imports and exports – supply is impacted by the amount of natural gas going out or coming in
  • Factors affecting demand
    • Status of the growth of the economy – when the economy is strong, demand for commercial and industrial goods and services increases resulting in a higher demand for natural gas
    • Unexpected extremes in weather – an unusually warm winter or cool summer results in less demand for natural gas, the same way an excessively cold winter or hot summer increases demand
    • Availability of other fuels – when other fuels are short in supply or have increased prices, the demand for natural gas increases, and likewise if there are an abundance of other fuels at lower rates, the demand for natural gas decreases

Transmission, distribution and storage

Aside from the commodity itself, transmission and distribution also play a part in adding to the cost of natural gas. Transmission and distribution fees are the costs required to move natural gas from where it is produced or stored to distribution utilities via pipeline, as well as the cost to deliver it to consumers.

Who supplies my natural gas?

Depending on where you live, your natural gas is supplied by a utility. In deregulated states, such as Ohio, you have the freedom to shop around for a supplier, like AEP Energy, who can give you the most competitive price. The utility will still provide the same natural gas, reliable service, read your meter, and maintain your lines without any type of interruption. You are simply able to select from a variety of price plans which offer secure fixed rates. Check out our website to find a price plan that’s right for you!

Resources:

https://www.epa.gov/uog

https://www.eia.gov/naturalgas/

https://www.energy.gov/natural-gas

AEP Energy does not guarantee the accuracy, timeliness, suitability, completeness, freedom from error, or value of any information herein. The information presented is provided “as is”, “as available”, and for informational purposes only, speaks only to events or circumstances on or before the date it is presented, and should not be construed as advice, a recommendation, or a guarantee of future results.  AEP Energy disclaims any and all liabilities and warranties related hereto, including any obligation to update or correct the information herein.  Summaries and website links included herein (collectively, “Links”) are not under AEP Energy’s control and are provided for reference only and not for commercial purposes.  AEP Energy does not endorse or approve of the Links or related information and does not provide any warranty of any kind or nature related thereto.

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