PINEDALE – Pinedale Natural Gas owner Steven Shute called the January prices for the fuel’s heating and appliance costs “unprecedented.” And these highs are likely to continue through March, he added.

Prices had remained fairly consistent for consumers through October and November, and Pinedale Natural Gas (PNG) sales broke records for November and December, he said in a phone interview.

PNG buys its gas from the Opal hub near Kemmerer, where the southwest Wyoming-produced supply continues on to Chicago and Denver to the east and Boise and the West Coast to the west.

PNG buys its gas on the First of Month (FOM) index at the Opal hub, which means the last few days of trading each month set the next month’s rates that PNG passes on to consumers, adding only transportation costs, Shute explained. 

Panic attack

The December FOM index rose 25 percent to $12 per decatherm, “the highest FOM index that PNG had ever paid in our 30-year history,” he said.

The January futures market looked strong, in the $12 to $20 range – but in those last three trading days of December 2022, “only a handful of trades registered for a small amount of gas, about one-fifth of normal.”

But based on those small trades, Opal’s January FOM pricing shot up to almost $50, “four times the highest ever paid by PNG in its 30-year history.”

This rate affects all natural gas customers west of Pinedale and Rock Springs; back east in Kentucky a sister company’s January index was $6 to almost $50 in the West, according to Shute.

“The Western natural gas market suffered a panic attack for the January gas price index,” he said, calling the surge “absolutely unexpected and illogical.”

Prices had remained stable in Sublette County, Shute said, even though markets “haven’t been normal lately.”

“With Russia’s machinations in Ukraine and Europe last winter, PNG had hedged or forward-fixed the price on much of our gas needs for winter,” he said. “For December-January-February we hedged three-quarters of expected volume, at an average $8 per Decatherm, same as last winter, which was a surprisingly good outcome in December.” 

‘Anomaly’

Shute still struggles to understand the gas market index’s “anomaly” at the end of December, affecting 80 million customers across the West.

“January gas futures were $9 and $10 in late November and $14.50 on Dec. 15, “with a little jostling before Christmas.” The actual cash price on Jan. 1-3 was $16 and ranged from $7 to $21 for the rest of January, averaging out at $15.60 per Decatherm, he noted.

“So with that history, it’s a complete mystery how the index was set at $50 for January – four times the December price and three times the actual cash price for the 31 days of (December).”

If PNG had not hedged at all, he said, the company could have paid as much for fuel in January as it did for all of 2022. This reduced PNG’s exposure by $1.4 million. But PNG’s gas cost for January alone will be about two-thirds of its entire bill for all of 2021.

“The effective rate in January is 15 percent higher than December and by about 30 percent for all of 2022i annual gas cost

Customers’ gas bills will go up as they start paying back “any (PNG) under-recovery of gas cost.”  

Recoveries

Every six months, PNG files for a “purchased gas adjustment” with the Wyoming Public Service Commission. This allows PNG to amortize over- and under-recoveries over the next 12 months.

Last winter, PNG customers paid $1.055 per Therm (10 percent of a Decatherm) and then $1.17 through December 2022, he noted.

Also, the Public Service Commission approved PNG’s emergency $2.00 per Decatherm surcharge that took effect Jan. 17.

“With the emergency surcharge, the new rate will be $1.45 per Therm for the next three months,” Shute said. “These higher rates will continue through March and April.”

This winter started out relatively mild but “was made infinitely worse by having the coldest November and December compared to 2022,” he said. “January was okay until the last couple of days.”

January bills will shock PNG customers – “Meter readings and billing were delayed by the bitter winter weather and January’s billing cycle is two to three days longer than normal and included the -36 F siege.”

At the very end of January, temperatures plummeted, barely reaching 0 degrees.

The next price index change might level out somewhat, he said, with natural gas futures currently lower than 2022.

But “the effect of the unexplained January index anomaly cannot be overstated,” he said. “PNG was mostly hedged against this price runup, and yet just the un-hedged sliver of $50 index gas in January will increase increase annual gas cost by about 30 percent over 2022 for every customer in Pinedale, for all the rest of 2023.

Operators in Wyoming and elsewhere should be comfortable, according to Shute.

“If they didn’t do anything different than they did last January, their revenue for January 2023 is 7.5 times last year’s for doing nothing.”

Advice

Weatherproofing a home pays off but many people will probably still feel cold air, little cracks and heat losses that can be fixed. Shute advised against running an electric heater in a big space, because even at PNG’s highest rates, “Natural gas is still less than half the cost per British thermal unit.”

Each May, PNG customers can sign on for Budget Billing to get a level bill each month, getting more credit in summer to go toward winter.

“With this unexpected gas cost panic, we’ll have to adjust those amounts to compensate,” Shute said. “PNG will be lenient on folks with big bills they struggle to pay, if they’re making an honest effort.”

His message to PNG customers:  “If you get in trouble, please call us, discuss your options and at least keep paying something toward your bill.”