February 02, 2023

Why Your Gas Bill Just Went Up

By Paul Miloe, CRPS®

If you receive billing from a gas utility, your January bill was likely an unwelcomed surprise. For many in the U.S., natural gas bills saw significant increases over the past year. Here in southern CA, one of the local utilities, SoCalGas, sent a letter in Jan to customers shortly after sending billing notices to help answer questions about the increase. Within, they cited an “unprecedented cold snap across the nation” as the primary culprit. However, wouldn’t you expect a utility to foresee cold weather in the winter as part of their budgeting process? Clearly, there has to be more to the story to justify a 50% increase in cost.

While excess demand can drive up pricing based on known supply, there is more to the story. Prior to 2016, the U.S. had an excess supply of gas which kept prices low. After that time, new terminals came online that were able to condense the gas to a liquid form which allowed for exports. Since then, the U.S. has become a primary exporter of natural gas. While this has been a benefit for the industry, it has also limited supply. Pair limited supply with an excessively cold winter, and you can wind up with sky high prices. However, as of Jan 2023, the price of natural gas has come down in nearly every state except CA. So why is that?

By mid-January, the average price of natural gas as measured by the benchmark “Henry Hub” (a pipeline junction in Louisiana) came down to ~$3.75 per million BTUs (MMBtus), but in CA, the pricing was averaging ~$19.40/MMBtu! This was an improvement over Dec when CA pricing was over $40/MMBtu. Part of the issue is supply. CA only produces 8% of its supply, 38% comes from the US Southwest, 27% from Canada, and 27% from the Rockies. Couple limited intrastate supply with out-of-state supply pipelines either being down or undergoing maintenance, add in a colder winter here, and soaring prices are now in effect as inventories have been substantially reduced.

So, is converting to electric the answer? Maybe not. Southern CA Edison announced in Jan 2023 that electricity rates were set to rise by over 7% because….wait for it….natural gas is the primary source for over 20% of their electricity production. While higher gas and electric bills will be a factor for the time being, there is relief brewing as natural gas pricing has dropped considerably in recent days. Hopefully, that trend will continue nationally and carry over to CA allowing prices for those in the Golden State to normalize. For now, you can either seek to limit use or be prepared for higher utility bills.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.