Sunday, August 30, 2009

Natural gas prices hit their lowest levels in seven years on Thursday following a new government report on how much of the stuff is building up in pipes, unburnt. Idle factories and slower-running electricity generators have caused a plunge in demand that would have been unimaginable a year ago, when prices were four times higher. That's bad for gas producers and good for consumers who will use it to heat their homes this winter.

Thanks partly to large new wells tapped in recent years, natural gas prices refuse to rise as the economy starts to recover. This quote from a Bloomberg story tells the tale:

“I’ve tried to guess a bottom on this market a thousand times and it just keeps getting crushed,” said Carl Neill, an energy analyst at Risk Management Inc. in Chicago. “We have a lot in storage. I don’t know what will turn it.”
For BGE customers, natural gas prices more or less float from month to month, and they'll probably bump up a bit from today's level before the cold months. They usually do. But they promise to stay far below levels of a year ago. BGE has already stocked up some gas at prices slightly higher than today's. So far we've avoided a major Gulf Coast hurricane, which was really the only thing that could cause a return to 2008 levels.

The question, as always after prices drop like this, is: Should you lock in a long-term natural gas deal with Washington Gas Energy Services? So far I haven't done so. At 85 cents per therm for a two-year deal, WGES is still way above today's prices. (BGE is charging 56 cents this month.) And it's probably above what prices will be all this winter.

There's a chance BGE's price will be more than 85 cents for the winter of 2010-2011 if the economy recovers in a decent way. But it might not be. And even if it is, I'm betting the money I save this winter by sticking with BGE's lower, floating price will be at least equal to any extra I might have to pay for the second winter. And if natural gas prices continue to fall, the longer-term deals from WGES and other alternative suppliers should improve.

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