When Should I Lock In My Natural Gas Rate?

If you’re shopping around for a new natural gas plan, you may be wondering when is the best time to lock in natural gas rates? That's an important question to answer in order to get the right plan for you. Knowing when natural gas prices normally change may help you take advantage of lower rates and secure a better price for the long term.

What does it mean to “lock in” natural gas prices?

When we say "locking in," we mean entering into an energy contract where the supply rate of natural gas is fixed, or remains the same over time. That will ensure that you pay the same supply rate for your energy use from month to month. This means your supply rate won’t be affected when the market price of natural gas shifts over the course of your contract term.

When you lock in natural gas prices, you get the benefit of having a plan with a stable rate, or a fixed-rate plan, with a more predictable natural gas bill each month. You may even be able to find contracts with terms up to two years. But the longer the term you commit to, the more you’ll want to make sure you’re entering the deal when prices are low. It pays to know the best time to lock in natural gas prices.

The best time to lock in natural gas rates

Natural gas has a fairly cyclical market. So, if you’re not already committed to a contract, you can use seasonality to determine when prices will most likely be lowest. As people use more natural gas over high-demand seasons, market prices will rise. So, the best time to lock in natural gas rates is during low-demand months.

What are the “shoulder months”?

The “shoulder months” are the months just before and after summer: March through April and September through October. Since the temperature is usually more moderate in late spring and early fall, fewer people rely on natural gas to heat and cool their homes during those times. Lower usage is a factor in causing market prices to drop, making the shoulder months typically the best time to lock in natural gas rates.

How natural gas prices are determined?

Natural gas prices can be influenced by any number of different causes, but there are a few main factors. First, there’s how much the actual gas itself costs, and that’s determined by the market. It also costs money to move natural gas from where it’s produced to where it’s stored and, ultimately, to users. That cost is transferred to consumers. And the government plays a role, too, in the form of taxes and regulations. Broadly speaking, these basic factors determine natural gas prices.

Why do natural gas prices fluctuate?

When natural gas prices fluctuate, it’s usually the result of supply and demand. If natural gas supply is low, or if consumption is high, the cost per therm of natural gas will rise. Likewise, when supply is high or demand is low, the price per therm will fall. Many factors affect this supply-and-demand cycle and, thus, natural gas prices.

Natural causes of energy price fluctuation

Energy price fluctuations are caused by various environmental factors, such as:

Seasonality. When temperatures increase over the hot summer months, people rely heavily on their air conditioners to keep cool. Similarly, furnaces are a common choice for combating the freezing temperatures of winter. This increased demand tends to cause natural gas prices to rise. And during the shoulder months, when the weather is milder, prices may fall.
Severe weather. Hurricanes, tornadoes and other severe weather may have an impact on natural gas production. If natural gas production is interrupted, the price per therm can be expected to fluctuate. This is especially so if severe weather affects natural gas production during high-demand seasons.
Natural gas reserves. According to the U.S. Energy Information Administration, the United States produces most of the natural gas it consumes. However, as with all natural resources, natural gas reserves in America are limited. As supplies dwindle, the price of natural gas could begin to rise.

Human causes of rising or falling energy prices

Natural gas prices may also fluctuate as the result of human influence:

Natural gas production. The amount of natural gas produced, as well as the costs to do so, will affect the current market price. If companies have to spend more to produce natural gas, prices may rise. However, a decrease in production costs could result in a drop in prices.
Consumer confidence. When the economy is strong and predictable, consumers and investors may feel more confident spending on natural gas. But if they feel like there’s some risk involved, they may not be as quick to spend. In either case, consumer confidence can have an impact on the cost of natural gas.
Competition with other fuels. When the price of coal, petroleum and other alternative fuels change, so does the price of natural gas. For example, if coal or petroleum prices fall, consumers may switch to one of these alternatives, causing a decrease in natural gas demand and prices.
Government regulations. The government has the ability to create laws and standards that influence natural gas prices. This could come in the form of increased taxes, environmental regulations or the opening of new natural gas extraction sites.
International affairs. Events outside the United States have the potential to influence the price we pay for natural gas. If something restricts another country’s ability to export natural gas to our shores, or if international conflict creates a disruption in the exchange, natural gas prices can fluctuate as a result.

Should you lock in your natural gas rate now?

Natural gas prices are changing all the time, but that doesn’t mean your supply rate has to. If you lock in your natural gas price — especially during the colder months — you may be able to enjoy a lower and more stable supply rate that won’t be affected by market prices.

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