Monday, January 9, 2012

Natural gas price hits new lows but many US residents are not benefitting

US natural gas continues its decline, as futures are toying with and briefly crossing the psychologically important $3.00/MMBTU support level.  The price collapse has been unprecedented.

Henry Hub natural gas active futures contract (Bloomberg)
Warm weather, ample supply, and limited storage are driving down prices.  The amount of gas in storage is substantially higher than the 5-year range.

Natural gas in storage (billion cubic feet) - source: EIA

One would think that all this abundant cheap natural gas should make it easier for the residential consumers this winter. But apparently that is not the case just yet.  Consumers seem to be paying roughly the same seasonal retail price they have paid in the past and not benefiting from this decline.  Take Illinois for example.  Here is one state that could use a break in gas prices given the poor financial conditions and cold winters.  The chart below shows prices Illinois residents pay for gas vs. the NYMEX futures contract.  Yes, one could argue there should be a basis between the two prices, but why would the spread be increasing that much? The residents actually seem to be paying more than they did the same time last year.

Natural gas Illinois residents pay for gas vs. the NYMEX futures contract (Bloomberg)
Clearly there are a number of intermediaries between the pipeline and an Illinois resident, and they all seem to be making more money.  But nobody seems to be out there "occupying" their local utility.  Perhaps it's time to cap the greed and give an Illinois resident, who is not able to shop in a competitive market, a break on her gas bill.
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