As the world shifts toward electrification, you might think that a reduction in demand for natural gas will lead to lower prices. While this may hold true in some economic sectors, we believe the natural gas economy will behave differently.
Natural Gas pricing is very complex because the long-term costs associated with natural gas extraction and distribution, coupled with the regulatory environment, may actually result in rising prices.
- Long-Term Costs Recapture: Utility pricing includes the cost of supplying natural gas to your location. That’s the cost of laying pipelines and storage facilities. While lower reduced demand may temporarily reduce prices, it also means natural gas companies may not be able to recoup their distribution costs which are generally funded with borrowed money. As a result, suppliers will request rate increases to recover their long-term investments and ensure profitability and sustainable operations.
- Regulatory Factors and Pricing: Nearly all utilities are regulated in the USA. Rate increases must be approved by state/local regulatory agencies.
The electrification trend presents a unique scenario for the natural gas industry and its consumers. Don’t get lulled by economic theories that govern unregulated markets as you determine when and how you want to approach electrification. Buyer Beware.
Disclaimer: The information presented in this blog post is based on the current understanding and analysis of the topic. Natural gas prices and market dynamics are subject to change due to various factors, and individual circumstances may vary.