Why Natural Gas Rates Fluctuate

Natural gas rates can be affected by a multitude of factors which affect the supply and demand for the resource on the market.

Price fluctuations in natural gas prices are due to changes in the supply and demand of the resource. As supply and demand changes, the price changes accordingly to bring natural gas back to its equilibrium price. A price equilibrium is the price at which supply and demand are equal and the market’s needs are met. These changes in supply and demand affect your natural gas rates so it’s best to understand exactly what causes these price fluctuations.

What causes change to the supply and demand of natural gas?

There are three factors which influence a change in demand and four factors which influence a change in supply. Any of these factors being present may result in a change in natural gas prices.

Factors influencing a change in demand:

• The price of oil
• The state of the economy
• Changes in the seasons and weather

Factors influencing a change in supply:

• Amount of natural gas imported or exported
• Changes in how much natural gas is produced
• Amount of gas located in storage facilities
• Delivery constraints

Demand for natural gas is especially high during periods of severe weather. During times of severe weather it is common for natural gas storage facilities to be low on inventory which will result in a spike in prices. Harsh weather may also cause a halt in natural gas production which would cause a shortage as well as an increase in price. The lower the supply of natural gas, the higher the price, and vice versa.

What composes natural gas rates?

There are two costs which make up natural gas rates: the commodity cost and the transmission and distribution cost. The commodity cost is the price of the natural gas itself. Natural gas must be transported from where it is produced to your household. The cost of this is allocated to the transmission and distribution cost. A third cost which constitutes natural gas rates is the HST you pay on top of the rate.

Fixed-Rate Plans

You may get some level of discomfort from not knowing exactly what you’re going to be paying on your bills. If you want stability in your natural gas bills then there are fixed-rate plans which will give you just that. Signing up for a fixed-rate plan means that you will be paying the same monthly rate for the duration of your contract. This rate is not influenced by any changes in the market price of natural gas. With a fixed-rate plan there will be no need to worry about your upcoming natural gas bill because you know exactly what you will be paying.

If you are not on a fixed-rate plan, but would like to know about rate changes before they happen then it is best to stay up to date on the factors that affect the supply and demand of natural gas. The demand for natural gas is continuously increasing and fluctuations in the resource’s price are expected.