5 Common Natural Gas Questions — Answered

By Mike Eckenroth

When you look at natural gas bids, it can be a struggle to accurately compare pricing between suppliers. There’s no standard offering for natural gas pricing.

Which can lead to a lot of questions. The 5 most common natural gas questions we’re asked are:

  1. What’s the difference between Citygate and Burner Tip?
  2. Which delivery option is better: Citygate or Burner Tip?
  3. What is swing percentage?
  4. What’s different about 100% swing?
  5. Which swing percentage is best?

Below, we’ve answered these questions in a way that will boost your natural gas knowledge and give you the confidence to make a better buying decision for your company.

What’s the Difference Between Citygate and Burner Tip?

“Citygate” is the physical location where natural gas is delivered to a local distribution company (such as Nicor or BGE) via pipelines. “Burner Tip” refers to the point at which the gas is used as fuel.

When it comes to your natural gas rate, the difference between the two lies in how a supplier charges for gas that is lost during transport.

This about it like this:

Imagine you pour exactly 1 gallon of water through a hose. When you measure the amount of water you get on the other side, it will never measure out to exactly 1 gallon. It’ll be close, but it will always be less than 1 gallon because some of the water will leak out or stick to the inside of the hose.

The same thing happens with natural gas. When gas is transported through pipelines to your facility, a small portion of it is lost during the trip due to leaks. This gas is called “lost and unaccounted for gas,” or LUAF.

A Burner Tip rate includes an additional charge to compensate for the lost gas — Citygate does not. Therefore, the supplier with the Citygate rate will charge you a fee separate from your rate to compensate for the losses.

If a supplier does not specify whether a bid is Citygate or Burner Tip, ask!

Which Delivery Point Is Better: Citygate or Burner Tip?

From a performance standpoint, one option is not better than the other. However, you need to know which delivery point a supplier is using for their bid so you can analyze the rates.

If a supplier is presenting a Citygate price, add 1-3% to the price to have an accurate comparison to a Burner Tip quote.

What Is Swing Percentage?

Swing percentage is a component of natural gas pricing that dictates how far your usage can deviate from your monthly contracted quantities without incurring incremental charges. The most common swing options are 0%, 10%, and 100%.

How does my bill differ with each option?

The price for any usage deviation depends on which swing option you choose. Prices for swing options greater than 0% include risk premiums.

Below is a table that highlights how each swing option affects the price you pay.

What Is Swing Percentage?

 

What’s Different About 100% Swing?

With a 100% swing product, suppliers charge you the same rate regardless of how much natural gas you use. If you use significantly more or less natural gas than expected, the supplier bears the burden of purchasing or selling additional quantities at the market rate.

Because of this risk, suppliers will charge you a premium for 100% swing that’s included in your rate. The premium charged is a function of the amount of variability in your month-to-month natural gas purchases.

For example: If you mostly use natural gas for heat in the winter months (like a condominium association), your premium will be higher than the premium for a customer who uses the same amount of gas every month (like a manufacturer).

A supplier’s bid for a 0% swing product could appear lower than a bid at 100% swing. That difference is at least partially due to the premium included for 100% swing.

Which Swing Percentage Is Best?

To decide the swing percentage that’s best for you, you need to know your company’s risk tolerance. If you can tolerate risk and have a very predictable usage profile, your can choose a lower swing percentage and achieve a lower overall price than someone who opts for 100% swing. However, that is not a guarantee.

Budget-conscious organizations that use natural gas for heating, such as associations and non-profit organizations, benefit from a 100% swing product. They can set their budgets beforehand and plan for the year.

Organizations with more predictable natural gas usage, like manufacturers, are typically more risk tolerant and can stand to benefit financially from taking a lower swing percentage.

Know the Ins and Outs of Supplier Bids.

Understanding Citygate, Burner Tip, and swing percentage can drastically change how you analyze supplier bids. Knowing how these components impact your rate empowers you to become a better natural gas buyer. Keep in mind that not all suppliers can provide all options.

It’s important to get an apples-to-apples comparison — you should work with an energy advisor to include any necessary adjustments that will align supplier bids and ensure an accurate comparison. An advisor can also answer your questions and help you create an energy strategy that matches your risk tolerance and meets your goals. Give me a call to discuss how you can optimize your natural gas purchase.

 

About the Author

Mike is an energy professional based out of Baltimore, Maryland, with a strong engineering and purchasing background. His specialties include energy efficiency and strategic commodity procurement. Growing up in the shadow of the Three Mile Island nuclear power plant, Mike has an intimate stake in a grid with safe, reliable, and cost-effective energy generation — which he leverages into an energy strategy that provides security for his clients.

You can reach Mike via email at meckenroth@naniaenergy.com or phone at (717) 679-3663.

The Secret to Timing Your Energy Purchase

By Sarah Rousseau

When it comes to buying energy, decision makers usually go by two rules of thumb:

  • Wait to buy until rates are at their absolute lowest, and
  • Only buy in the “off-months” (winter for power, summer for gas).

These strategies may have worked in the past, but they aren’t conducive for today’s evolved energy market.

Here’s why:

  • Current energy rates are near historic lows, and we seem to have hit a price floor. Although it’s possible for rates to dip back down, chasing that mentality can leave you unhedged and vulnerable to an upward trending market.
  • The monthly time windows no longer exist, especially as consumers switch to electric heat and natural gas continues to be used to generate electricity. In the graphs below, the lowest electric rates occurred between June and September, and the lowest gas rates were seen in January.

electric timing your energy purchase

gas timing your energy purchase

There’s no longer a “perfect” time to buy energy — so how do you know when to buy?

The secret: Always Be in a Buying Mindset.

Here’s how:

1) Know your company’s risk tolerance.

Waiting for the lowest possible rate could cause you to miss out on current savings and leave you exposed to the upside of the market. If the market turns, you’ll be forced to pay a higher rate and face buyer’s remorse or management scrutiny.

To avoid this, set price triggers for rates above and below the current market price that match your risk tolerance, then execute when one is reached. In today’s backwardated market, the trigger price could be for a 36- or 48-month term, offering your company long-term protection.

2) Understand your company’s purchasing process.

Knowing how long it takes you to get a purchasing decision approved helps you determine when to start looking at rates.

  • Can you execute a contract same day?
  • Does your board takes months to make a purchasing decision?

Being able to answer these questions allows you to facilitate your internal processes and start the buying process sooner rather than later.

3) Be proactive, not reactive.

Exploring rates less than 3 months before your contract expires doesn’t give you enough time to evaluate your energy purchasing strategy — especially if you have a long internal purchasing process.

Be aware of when your contract expires and take the early call from your advisor, even if your contract isn’t up for 12 to 24 months. They can update you on market trends and help you develop a plan that fits your needs.

Don’t Wait for the “Best” Time to Buy.

Rates are near historic lows, and seasonality  is gone. Take advantage of current opportunities in the market to protect your organization before the market turns. Call your energy advisor for a market update and discuss your buying strategy.

 

About the Author

Sarah has been in the energy industry for over 12 years. Her background is in customer care, account management, pricing, and energy solutions.

As the Director at Nania Energy Advisors, she oversees all internal core functions of the business, including marketing and client relations. Her specialty is her experience in energy pricing and understanding the evolving energy markets. She most enjoys being an advocate for clients and helping make things easier for them.

Sarah holds a Bachelors in Psychology from Illinois State University. In her spare time, she enjoys spending time with her daughter and family, practicing yoga, traveling, and watching college basketball.

Sarah can be reached at (630) 225-4553 or via email at srousseau@naniaenergy.com.