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Posted on: January 31, 2023

Facts Behind the Cost of Natural Gas

Facts Behind the Cost of Natural Gas

FING does its best to purchase gas supply at an economical price point, navigating all of the influences on the market that are outside of our control the best we can.

FING is not a ‘gas supplier’, we are a gas distribution company; their primary objective and expertise is to provide safe and reliable delivery of gas to its patrons.
Natural gas is a traded commodity; however, there are several parts to the gas cost; the commodity portion is only one piece of the pie so to speak. The commodity portion that is traded is based in Louisiana.
Another piece of the pie is basis, which is the difference between SC and LA in regard to the molecules as traded by market participants.

FING has several tools it utilizes to address the risk of speculative trades on commodity and basis which include:

  • Prepay gas supply at a discount to the market price
  • Fixed price purchases within the prepay to provide upside price movement protection
  • FING purchases additional gas for each winter, above what the prepay agreement allows for, years in advance to try and mitigate winter price risks
  • FING conducts RFPs to find the best supplier possible to sell the gas to FING, with the most resources to provide options to address market risk
  • FING uses outside consultants who are experts in trading to advise the Director on times where the market may be most volatile and options to address this risk
  • FING has to match daily deliveries to actuals as directed by the pipeline; it may have to buy daily gas to avoid penalties which can be significantly higher
  • FING uses a storage account, where we put in gas in the summer and pull it out in the winter to avoid paying higher winter prices on some of our gas
  • FING has actively discounted the cost of gas by paying for some expenses related to gas supply (such as merchant services and the outside consultant costs) out of reserves built up by the delivery fees
  • FING allows large industrial accounts to transport, purchasing their own supply and manage their own risk, while at the same time reducing the volume of gas FING has to purchase

As an expert in safe and reliable delivery, FING seeks advice from experts in purchasing natural gas; however, FING directly manages all gas purchases itself, by the Director. FING does not make any money on the sale of natural gas to its patrons, it makes money only on the delivery of the gas. The actual cost of gas is a passthrough, the patrons pay what FING pays. FING must navigate the volatility of trades for both commodity and basis, both of which are influenced by ‘speculators’ or ‘professional traders’ at a level of at least 40:1 to end users like FING. FING is not a speculator. Speculators seek to trade commodity and basis for a profit. FING is an end user just like all of its patrons and does not seek profit from natural gas trades. Natural gas, both commodity and basis, which are traded, are influenced by more than just weather. There are several other factors to include geopolitical and economic domestically and globally, of which FING does its very best to address.

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