Have Questions about Natural Gas Prices? We’ve Got Answers

Have Questions about Natural Gas Prices? We’ve Got Answers

In recent days, we have received several questions about natural gas prices. We have answers to your questions. 

1)    The Wall Street Journal recently published an article about natural gas prices plunging. So why are SDG&E customers paying record prices for natural gas? 

On Jan. 4, 2023, The Wall Street Journal did publish an article titled Natural-Gas Prices Plunge as Unseasonably Warm Weather Is Forecast - WSJ. But a week later, on Jan. 11, 2023, The Wall Street Journal published another article titled Natural-Gas Prices Have Fallen Back to Earth—Except in California - WSJ, explaining the differences in market conditions between the West Coast and the rest of the country. 

While natural gas market prices may be lower elsewhere, they remain elevated in the Pacific region where gas demand is high due to cold weather and low storage levels. There is a significant price differential between gas market prices on the East Coast and West Coast.

According to the U.S. Energy Information Administration’s December weekly market report, several factors have contributed to higher natural gas commodity prices:

•    Widespread, below-normal temperatures
•    High natural gas consumption
•    Reduced natural gas flows
•    Pipeline constraints, including maintenance in West Texas
•    Low natural gas storage levels in the Pacific region

Additional Information About Market Volatility
During the winter months, natural gas prices typically trend higher. For the past couple of years, prices at this time of the year have traded between $5-$6/dekatherm. Last year January prices were higher, at about $8/dekatherm. At the end of December 2022, when SDG&E was required to submit estimates to the CPUC about natural gas costs for January, prices soared as high as $50/dekatherm and averaged about $42/dekatherm, more than five times last year’s price.

2)    Where does SDG&E buy its natural gas?

Most of the natural gas used in California comes from out-of-state gas basins in the Southwest, Canada, Rocky Mountain area, and Texas. SoCalGas, which buys natural gas on behalf of SDG&E, does not trade at Henry Hub (a natural gas distribution hub located in Erath, Louisiana) in Louisiana. It trades at hubs in California and Pacific Northwest, as well as in those gas basins.

3)    Why can’t SDG&E buy cheaper natural gas supplies on the East Coast and save money that way?

Gas purchased on the East Coast must be transported to the West Coast. Unfortunately, interstate pipeline capacity to the West Coast has been reduced because of pipeline maintenance activities in West Texas. Pipeline capacity serving the West is maxed out.

4)    What is SDG&E doing to help customers who are struggling? 

SDG&E has made $1 million available in customer assistance available via Neighbor-to-Neighbor (N2N), which is entirely funded by shareholder dollars, not ratepayer dollars. This program provides up to $300 in one-time grants to help offset past due bills for SDG&E customers who are experiencing financial hardship but aren’t eligible for the Low Income Federal Financial Aid for Qualifying Customers | San Diego Gas & Electric (sdge.com)

SDG&E also offers bill discounts as part of the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA).

If a customer or someone in their household has a qualifying medical condition or a need for certain medical devices, they may qualify for the Medical Baseline Allowance Program. Medical Baseline provides an additional amount of gas and electricity at the lowest rates for residential customers. 

Additionally, SDG&E offers several energy efficiency programs like Residential Energy Solutions, Energy Savings Assistance, and Golden State Rebates that can help customers save long-term on their energy bills. 

To learn more, visit this one-stop webpage:  SDGE.com/assistance.

5)    Will natural gas rates go down? If yes, when? 

Thankfully, high natural gas prices are not permanent. Historically, as the weather warms up and gas usage declines, gas prices moderate and bills go down. Also, natural gas rates paid by customers change monthly based on the market price for the fuel, and residential natural gas usage is typically the highest in January when the weather in our region is usually the coldest. 

6)    What are the best ways for customers to reduce their natural gas use?

SDG&E has created a dedicated webpage with tools and tips to help customers cut their winter energy bill. Check it out at Energy Management - Winter | San Diego Gas & Electric (sdge.com). Here are some easy ways to reduce energy use: 

•    Lower your thermostat: You can save as much as 10% per year on heating and cooling by turning your thermostat down 7-10 °F for 8 hours a day in the fall and winter, health permitting. 
•    Control humidity: Instead of reaching for the thermostat, use a humidifier to keep your home humidity between 30 and 50%. You will feel warmer with some humidity in the air. 
•    Wash with cold water: Washing clothes in cold water can save you up to 10% on water heating costs 
•    Stop the breeze: Caulk and weather-strip around drafty doors and windows.  
•    Reduce use of non-essential appliances: Spas, pool heaters and fireplaces can use a significant amount of gas or electricity.  

7)    Is SDG&E profiting from rising natural gas market prices?

SDG&E does not mark up the cost of natural gas that we buy in the commodity market on behalf of our customers. Therefore, we don’t profit from rising market prices. If we buy natural gas for a dollar, we sell it to the consumer for one dollar. 

8)    Does SoCalGas mark up the price of natural gas that it buys in the market on behalf of SDG&E?

No, SoCalGas and SDG&E’s natural gas portfolios are consolidated. The gas acquisition group based at SoCalGas serves both utilities. Being part of a larger purchasing portfolio allows SDG&E to broaden sources of gas supply more easily at better terms and reduces trading costs.

9)    What are some of the strategies SDG&E uses to mitigate high spot market prices for natural gas?

We use a suite of tools to help make sure our customers get the best possible prices. These include long-term contracts; baseload purchases (buying the month prior; use of storage fields, which allow us to stock up natural gas during low-cost summer months and store it for use during higher cost, winter months; and prudent use of financial hedging tools. 

10)    What is the current forecast for natural gas prices in the coming months?

SDG&E resets the price for natural gas monthly. The price for gas in February will be published at the end of January. Given how dynamic market conditions have been and the various factors that can impact the market (such as weather, customer demand, maintenance events and supply constraints), it’s a challenge to forecast what prices will be like.

Historically, as the weather warms up and gas usage declines, gas prices moderate and bills go down.

To learn more about natural gas market conditions, visit the U.S. Energy Information Administration website, which publishes weekly updates. Click on the “price” tab at the top of the page.