Hi! My name is Mike, and I’m a Senior Energy Advisor here at Nania Energy. One of the most common questions I get asked by clients is “When is the best time of the year to purchase natural gas?”
It’s a great question, because natural gas is a traded commodity — meaning prices go up and down with supply and demand. Should you purchase in the summer when there’s less heating demand? Or maybe in the spring and fall when the weather is a little more temperate?
In this week’s Two-Minute Tuesday, we’re going to answer just that.
How Buying Natural Gas Has Changed
Twenty years ago, purchasing natural gas seasonally made sense. You could purchase in the spring, summer, or fall when there’s less gas demand and generally make out pretty well.
But in the past few years, something has changed with natural gas. It has become the #1 source of electricity generation in the United States — meaning there is now year-round demand for it.
The chart below from the Energy Information Administration shows that in 1998, natural gas accounted for 15% of domestic electricity generation. In 2018, you can see that it accounts for 35% and is easily the United States’ number one source of electricity generation.
So, when you’re in the dead heat of summer and you have your AC blasting, guess what’s cooling you down?
That’s right — electricity generated primarily by natural gas.
How does this affect your gas purchase?
So back to our original question: When is the best time of year to purchase natural gas?
Because of the growth in use of natural gas, there’s not a “best” time to purchase it. Supply and demand are battling each other, and they’re doing it every season of the year.
But that doesn’t mean that you can’t create a strategy that takes advantage of the market. Some options that you can include in your strategy are:
- Planning hedging opportunities throughout the year, or
- Setting a price target for your upcoming agreement.
What I would NOT recommend is waiting 2-3 months before your agreement expires to take action. Who knows what the market will be doing at that time?
Make sure your current broker is following a purchasing plan that matches your goals and makes sense. If you don’t have a plan or would like help developing one, that’s what we do.
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