Covid 19: The Impact On Electric And Natural Gas Supply Rates.

Third party electric and natural gas consumers have been taking it on the chin over the last two years versus the utility default. Especially those in the Granite State of New Hampshire who executed agreements in 2018 and 2019. Will this trend continue? Well, there are signs that rates are rising in fact, the market is backwardated because future rates are lower than spot prices. Eversource NH third party quotes as an example is averaging over $0.085 for a 6-month term that starts in August. This is well above the current default of $0.066 while the third-party quote for 3 to 5 years is $0.075.

So how did we get into these low utility rates in the first place? Let’s go back to November 2018, the Henry Hub or the natural gas market spot price was trading at $4.09/Dth. It has steadily declined to a low unseen since 1995 to $1.63 in June of 2020. The reasons for the low rates were mild winters in the northeast in 2018 through 2020 followed by the devastating effects of the pandemic. The in-ground natural gas inventory in March of 2020 exceeded the 5-year average for the first time since November of 2013. This caused drillers to significantly scale back production by taking rigs offline. The count in November of 2018 was 193 and today there are only 93 with inventories now 700 Bcf below the 5-year average.

As Covid restrictions are being lifted, we are witnessing a renaissance in commodities across the board. Take a look at the table below.

Neighborhood Energy suggests to lock-in fixed rates during the shoulder season for at least 18 months to hedge against the unknown.  The reason is that we are in an environment that is unprecedented with commodities pushing higher because of the effects of the pandemic.  The pent-up demand along with producers scaling back supply is causing a rising tide with all boats moving to higher waters.  This coupled with the events this year in Texas that had real time rates at $9.00/kWh is guiding my conservative counsel to lock-in a fixed rate regardless of the current utility rate.  It was those consumers on a fixed rate in Texas that were protected from utility bills over $1,000 with little usage. 

Peace of mind and budget certainty is a good thing in these uncertain times.

Your friendly Neighborhood Energy!