Over the past couple of years, many have focused on how the polar vortex phenomenon affects energy prices. The term “polar vortex” has been used so often that many have forgotten that there are other natural occurrences and elements that affect natural gas market
Over the past couple of years, many have focused on how the polar vortex phenomenon affects energy prices. The term “polar vortex” has been used so often that many have forgotten that there are other natural occurrences and elements that affect natural gas market rates.
Understanding how energy markets work could help consumers make wise choices when locking in a fixed price. UGI EnergyLink is dedicated to helping our customers make the right choice. Here are some of the factors that can cause natural gas prices to increase and how you can protect your own energy budget.
Nature vs. Natural Gas Prices
What, exactly, is a polar vortex? The Earth has two poles: the North Pole and the South Pole. For the United States (and the Northern Hemisphere), a polar vortex occurs when there is a very large, upper-level, low-pressure zone at the earth’s Northern Pole. This low-pressure zone rotates counter-clockwise and strengthens in the winter as it comes in contact with the warmer, moist air mass further south.
We’ve all heard how a polar vortex caused electric prices to spike in 2014, but how did it affect natural gas pricing? The first correlation here comes from the fact that the colder weather of a polar vortex causes a drastic increase in demand for heating fuels, including natural gas. As demand goes up, generally prices do, too.
Additionally, more and more power generation is being fueled by natural gas because it’s now so widely available domestically, reliably accessed, and priced relatively low. The colder weather of a polar vortex also increases the demand for electricity for heating and other uses, meaning that the demand for natural gas for electric generation also increases significantly.
During the polar vortex of 2014, for example, electricity demands on the PJM Power Grid (serving Pennsylvania, New Jersey, and Maryland, among others) increased by 25% over normal usage for that time of year. Again, this increase in demand for natural gas usually means an increase in the cost of natural gas.
El Niño, La Nina & Hurricanes
El Niño is the term used to describe conditions in which the surface temperature of the Pacific Ocean around the equator is warmer than normal. When the surface temperatures are lower than normal, this is called La Niña.
These climate phenomena disrupt weather patterns around the globe and can greatly affect the number and intensity of tropical storms and hurricanes. Both El Niño and La Niña affect storms in both the Atlantic and Pacific, strengthening them in one region while weakening them in the other.
An El Niño year will tend to see more and stronger storms in the Pacific, but fewer and weaker storms in the Atlantic. Conversely, an El Niña will result in more and stronger storms in the Atlantic, which can have an impact on those of us on the East Coast.
Hurricanes can cause severe damage not only to homes and buildings but can also restrict energy infrastructure, like power lines and natural gas flowing through pipelines. One example many can remember is Hurricane Katrina in 2005. Natural gas pricing went up because the costs of transporting it through pipelines increased.
With technological advancements that are now allowing the Northeast U.S. to acquire and process natural gas from the shale right here in Pennsylvania and New York, we’ve become less dependent on natural gas pipelines bringing in gas from the Gulf of Mexico. This means that we are less susceptible to infrastructure disturbances in the Gulf.
Crude Oil Prices
Traditionally, natural gas prices were influenced by crude oil prices. When oil prices are high, natural gas is often substituted for petroleum products. This caused an increased demand for natural gas and, in turn, an increase in price.
Additionally, natural gas is often produced as a byproduct of the production of primary oil, meaning that when oil was produced in abundance, so was natural gas. And when oil was in shorter supply, natural gas was as well, resulting in higher market prices.
This link between crude oil and natural gas prices, however, has largely been uncoupled since about 2008. This is due, in large part, to the abundant availability of natural gas in the United States, and natural gas use in electric power generation.
How to Protect Yourself from Increasing or Fluctuating National Gas Pricing
- Fix your natural gas price
- If you’re not shopping for natural gas yet, take a look at current rates to lock them in for a year or more. While your utility can change your rate every 3 months on average, when you lock in a low rate with UGI EnergyLink, you’ll know exactly what you’ll be paying for the length of the agreement. Avoid price fluctuation and know your price will stay the same.
- UGI EnergyLink renewal customers have options:
- When the end of your natural gas pricing term is coming up, you will receive an offer from UGI EnergyLink to lock in for another term (usually 12 or 18 months). If you choose not to lock your rate in, you will be moved into a variable rate program, with the option to lock in or cancel at any time.
- If you have not locked in your price and are in a variable program, you will have one or two other chances to lock in your rates.
- Second Chance Offer, about one month after your r