The daffodils are old news by now.  That cold spell back in January seems like ancient history, and just a blip in the warmest winter on record.

Is natural gas an urgent matter right now?  It sure doesn’t feel like it, when we can dial down the heat and throw open the windows.

Market pricing has remained extremely low.  May futures pricing has been bouncing around the high $1s like a ground ball on the infield.  Meanwhile, January 2025 is trading $2 higher.

You have time and options.  You’re operating from a position of strength.  And isn’t that a good time to make business decisions?

The right decision for your business might be to lock in a fixed rate, or it might be to ride the market.  There are plenty of sound reasons to choose either strategy.  We’ll explore some of those below.

Either way, here’s the important thing: be intentional about it.

It’s easy to overthink all of the unpredictable factors affecting the marketplace.  Market conditions can change quickly, and we’ve seen high and low extremes in the past couple of years.  We can look down the road and evaluate the intel in front of us, but we can’t predict the future.

The key is to define your business priorities and make an informed decision.

 

Advantages of Locking In

1. The market is very low… for now. Whether that persists through the summer remains to be seen.  So far, futures pricing for space heat season has remained a lot higher than pricing in the front months.
2. Blend down forward pricing. Fixing a rate for a term that encompasses this spring and summer can shift some of the cost to the front months, to reduce the cost in winter.
3. Budget certainty. If the rates you can fix right now suit your business goals, there can be value in locking pricing that’s low enough, so you can focus on running your business.  The insulation from market increases and volatility might be worth the potential of missing out if the market falls later.  It also avoids the trap of waiting for the market to dip to that perfect price… that might never arrive.
4. The bears won’t be in charge forever. Production has decreased (slightly).  Weather forecasters are increasingly calling for a particularly strong La Niña, which could impact gas markets in many ways if it materializes: hot summer weather (increasing A/C demand from gas-fired power plants), an active hurricane season, and a cold winter.  And an event that causes demand to spike in the short term can impact spot markets abruptly, even if it doesn’t move the needle much in the futures market.

Advantages of Riding the Market

1. The bears are in charge right now. After two straight winters of record warmth, natural gas storage facilities across the country are well above the 5-year maximum level.  It will take a lot of factors to increase demand enough to overcome that position.
2. Current market pricing only blends down forward pricing so much. Especially if you’re primarily a space heat user, the relatively low volumes in the coming months might not drive down winter pricing enough to make a big difference.
3. Flexibility. You can always lock in later.  You may end up with a higher or lower price than you can lock now, and the variance might not turn out to be that significant.
4. The bulls might not be that strong after all. Many peaker plants can still burn coal instead of natural gas.  Hurricanes can have a bearish impact if they disrupt export facilities or cause demand-destroying power outages.  The production cuts that have made recent headlines are accounting for a reduction of less than 2% thus far, with a muted effect on pricing.

And we’d be remiss not to mention the potential wild cards in the coming months, from economic and political factors, domestically and globally, to energy traders.  A lot can happen quickly, moving energy markets in unexpected ways, whether they directly affect supply and demand or simply affect consumer sentiment.

So what does this mean for my business?

Define the goals for your business.  Recognize that your usage patterns and the economics of your utility’s gas programs can impact your risk-reward scenario.  Understand that you have attractive options and a window of opportunity that may or may not last much longer.  And above all, be intentional.

Additionally, it’s not necessarily an either-or decision.  If you’re on Transportation Gas already, you know this.  You can buy spot gas only.  You can lock volumes to meet (virtually) all of your needs.  You can lock volumes for a large percentage of your needs and supplement with spot gas.  You can layer in hedges, lock basis now and the commodity later, and employ many other strategies to manage risk and suit your budget.

Even on Gas Choice, where the decision may be binary for a single account, you can adjust over time, or customize strategies by location and meter if you have more than one.

Let’s discuss the right decision for you.

We’re here to advise our clients and manage their natural gas accounts, not just to supply the gas.  We customize solutions for your business, provide insights to optimize your energy strategies, and support your business going forward.  If we don’t already have a plan in place for you, contact us, and let’s get started.