Natural Gas Cost per Therm: The Actual Numbers
Natural gas is a popular power choice for many homes and businesses because it is versatile, abundant and relatively inexpensive most of the time. And Natural Gas is less than half as polluting as coal in terms of carbon dioxide emission, making natural gas a clean-burning fossil fuel. I often get questions on how whether the commodity gets billed by the utility or the supplier. For one, Massachusetts allows for consolidated third party invoicing with the utility while Connecticut, Maine, New Hampshire and Rhode Island third-party billing are dual (separate from the utility). Now, how do power companies’ price and bill for natural gas. The most common is the cost per therm. Here’s an explanation that will help understand the process:
What is a therm of natural gas?
You can measure natural gas use in a number of different ways. You might have seen terms like “therm”, “Btu” and “Ccf.” A Btu measures the heat value of natural gas. It’s short for British thermal unit, which is the amount of heat required to increase the temperature of 1 pound of water by 1 degree Fahrenheit. Ccf is short for one hundred cubic feet (C is the Roman numeral for 100). Ccf measures the quantity, or volume, of natural gas. A therm is a convenient way to price natural gas. Many companies bill their natural gas price per therm. A natural gas therm is equal to 100,000 Btu.
The average heat content of natural gas in the United States is 1,036 Btu per cubic foot. So, on average across the country, 1 Ccf (or 100 cubic feet) of natural gas was 103,600 Btu, or 1.036 therms. Many utilities and suppliers will use CCF and therms interchangeably because the values are so close.
What is the average price of natural gas per therm?
The average cost of natural gas per therm varies considerably by season and location. In January 2020, the national average price was $9.52 per thousand cubic feet. That’s $0.95 per Ccf. In 2019, the average natural gas therm price was $0.92. The previous August saw prices hit $18.58 per thousand cubic feet, or $1.86 per Ccf, for a natural gas therm price of $1.79.
Next to seasonal changes, location is the second biggest factor in natural gas per-therm rates. In 2019, New England consumers paid $1.48/therm (Transport and supply) that ranks in the top ten in the highest cost per state, while Idaho consumers paid the least on average in 2019 $0.63 per natural gas therm).
How are therms priced?
Natural gas is a frequently traded commodity. Natural gas cost per therm depends on a number of factors. Unlike electricity, which is generated nearby, natural gas has to be shipped from where it’s produced and stored. Distance from its source explains why natural gas is more expensive in New England and cheaper in Idaho and North Dakota. The method of natural gas shipment and how it’s stored and distributed matters. Pipelines are cheaper than trucks and trains. Higher capacity to store and distribute natural gas can translate into lower prices per natural gas therm.
Why are therms priced the way they are?
Like every commodity, supply and demand play a part. During times of high demand and low supply, the price goes up. Season, weather and economic strength are major drivers of demand. Lastly, state regulations and taxes add costs to your bill over and above the cost per natural gas therm.
Given the growing popularity of natural gas, it makes sense to understand how usage is measured and priced. When you know the natural gas price per therm, you can begin to manage how efficiently you’re using this resource.
Times are changing.
Finally, as a consultation, and as noted in last month’s blog, producers have significantly scaled back that may cause shortages in New England this winter. It is recommended to enroll with third-party supply for ‘peace of mind’ this winter.
As always, stay safe.
Your Friendly Neighborhood Energy!