Locking in Natural Gas Price

[frank1492]

I live in Massachusetts and my natural gas is supplied by Nstar. I have been given the option to lock in my gas price for this heating season at $1.2624 per therm. It is also noted that, as of Nov.6, the gas supply charge "for the winter" is $1.2424. Is this a good idea do you think? I will need to guess whether gas prices will go up in the NE. I do know that the NE is expected to be colder than normal this year. Your ideas would be much appreciated! Thank you. Frank

[Forrest]

The way I see it, it's like putting money on a commodity in the stock market. You can go short (bet that it will drop) and you can go long (betting that it will go up. I've been watching the price of Natural gas. It was more than double what it is now just a short time ago. It's been hovering around $6.50 to $7.50 per unit that they use, for a long time even though oil was dropping. I think the down side of it is here now and that it will rise in price in the near term future. I would try to lock in a price around what you have now. Either that or just put your gas money on a roulette wheel and take red or black :')

[Ed Pawlowski]

What exactly does "for the winter" mean? It there a normal seasonal summer/winter difference with fluctuations? If so, I'd say it is close enough to the lock in rate that it will most likely be higher in January so locking is a good deal. It is not so high that you'd suffer great loss if it did not change. You'd have peace of mind and if it went to $1.60 you'd have tears of joy.

[Chris]

This may be not easy to do but I would try to find another supply. There is something immoral in trying to con you into buying a future supply at a higher price. A supplier who tries to turn a biz transaction into a Las Vegas style toss of the dice doesn't deserve my business.

[HeyBub]

One of the first principles learned in an MBA program is: "Trade variable costs for fixed costs at every opportunity." The same applies to profits.

In the case at hand, the gas company may have locked in NG at, say, $1.00/therm (they've traded a variable costs for fixed cost), and are now trying to lock in a fixed profit.

In the non-MBA world, this process is called "insurance."

[hallerb]

I will need to guess

I wouldnt with our economic collapse energy is dropping, just look at crude oil......

natural gas is dropping too.

[ransley]

The price they are quoting seems at least 25% higher than what it could be if they were fair and current, recent price declines in Ng are not reflected in your price, its printed material? so its maybe a month old. Wait next offer will be lower or call for a present price. Google nat gas price charts and compare what you paid in the past to the charts. I would not lock in at what they offer now call them and tell us what they offer now. Gasolene here was 4.50 today its 2.11.

[frank1492]

Thanks all for your help. Both sides of the argument are good, but I think I will probably lock in. It's really the old supply-demand argument that swayed me, and I am thinking it will be very cold in the NE for most of the winter (based on everything I read.) We shall see. Thanks again! Frank

[PerryOne]

The world wide price of LNG is coming down as more and more companies are building terminals and pipelines.

[RobertPatrick]

frank1492 wrote in news: [e-mail]:

I always select the fixed option. Looks like you call that locking in.

[RobertPatrick]

"Ed Pawlowski" wrote in news:0kSUk.7517$ [e-mail]:

We only run our furnaces in the winter.

[ransley]

Costs are lower then his quote by 50%, his quote is old and price will still come down, unless a new war starts. I would not lock in at that high a price, its like locking in oil at last months price.

[Joe]

innews: [e-mail]:

I have oil and could have locked in last winter at $2.35/gallon. I didn't and ended up paying an average of $3.10/gallon - got burned. This year when it came time to lock in oil was skyrocketing. I had an offer to lock in at $4.70. I didn't. Now it's back down to $2.35/ gallon, roughly half of what I could have locked in for. I have neighbors who are beside themselves for locking in and have to pay $1000 to get out of their contract - which might actually be worth it now. It's pretty horrible that speculators are allowed to manipulate the commodity markets the way they do. I think that the only people who should be allowed to buy commodities are the people who can actually take ownership of what they buy.

[HeyBub]

If YOU had an opportunity to buy a contract, YOU are a "speculator" irrespective of whether you participated.

Your neighbors lost $1000. But someone else made $1000 profit.

It averages out.

[Ed Pawlowski]

True, but what about other gas consumption? Does that mean you take cold showers in the summer? Cook on the woodstove?

[DerbyDad03]

re: Does that mean you take cold showers in the summer?

Haven't you seen the old westerns where a busty young woman pours hot water from the pot on the woodstove into the big tub that the cowboy is sitting in?

[Phisherman]

No one knows and whoever thinks is just speculating. Utility companies who set these options up are more likely to make more money than lose, else they would not do it.

[DerbyDad03]

re:...else they would not do it.

I don't know the answer to this question, but I wonder how many of the utilility companies are forced to offer pricing options by whatever utility board they have to answer to?

Since the possibility exists for them to lose money (e.g. *everyone* chooses the fixed option and prices rise) I wonder how many of the options are offered because they have to be.

[Bob F]

Some of the airlines locked in their price a while back. Now they're really sorry.

[dpb]

Bob F wrote: ...

OTOH, while prices were escalating, they were in good shape.

It's "risk management" and any sensible company will do what they can. As I noted in a previous thread, in many ways price instability is far worse economic difficulty than is absolute price level.

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