Tuesday, March 30, 2010

Cheap Natural Gas

My wife observed that our most recent natural gas charge was $48.11 compared to $255.94 a year ago. That’s huge difference. I started thinking about the causes of this drop, but it wasn’t until I investigated further that I discovered the dominant reasons.

The cause I was hoping for was the new furnace I had put in. No doubt this high-efficiency furnace helped, but not that much. The other obvious cause was the mild weather we’ve been having. Again, this helped, but isn’t enough to account for the big drop.

The first thing I noticed when comparing the details in the bills was that the charges are based on “estimated readings”. Over the years I’ve often found these estimates to be wildly inaccurate.

I almost stopped comparing the most recent bill to the year-old bill at this point when I saw the per-cubic-meter charge on the most recent bill was 12.9 cents. This seemed low compared to the last time I noted this figure. Sure enough, a year ago natural gas cost me 29.2 cents per cubic meter. That’s a drop of 56% in one year!

This has to be galling for people who have been tricked into paying premium rates on fixed-price contracts. These low prices may not last, but I’m happy to ride the roller-coaster of gas prices instead of paying a premium to lock in gas rates for a few years.


  1. You might find interesting a quick read on the famous Simon-Ehrlich wager. It was a bet regarding the price of a basket of commodities over a ten year period.

    Ehrlich lost the bet, in part, because of the principle of substitution and improving technology.

    Your gas bill reflects a dramatic recent technological improvement in the extraction of natural gas, particularly from shale formations.

    The Ideas program on CBC Radio recently ran a story on salt. Apparently the Queen of England used to fret about her country's "dangerous dependence on foreign.....salt!"

    Technology and substitution has a funny way of making the doomsday prophets less than reliable. And knowing that helps commodity consumers stay out of silly contracts when the kid from the gas company knocks on your door.

  2. Try to lock in rates now!

    How much lower can the bill get in the winter?

    But first, read your meter and compare it with the estimated reading.

  3. Andy R: These technological improvements are the main reason I've never wanted to invest in commodities. The companies that extract commodities from the earth may do well, but actually owning the commodity seems like it shouldn't work well in the long run.

    Mark Wolfinger: If it were possible to lock in current rates it might be worth thinking about, but surely the companies offering locked-in rates are maintaining a huge spread over actual current rates. The other thing I wonder about is the solvency of some of these energy marketing companies. If rates rise to the point where their customers are actually coming out ahead, then the marketing company is losing money, which it can't do forever without breaking contracts.

    Mark Warner: I'm afraid I'm not sure what you mean by "tracing the baseless difference".

  4. Naturally, fixed contracts are inferior to paying the actual going price. I learned that from an article by a very wise man.

  5. Patrick: It's nice to see that someone keeps track of my ideas. It's also nice to see that the recent past has been consistent with my assertions back then. Of course, there has to be a period eventually where the fixed prices are better. But I can't predict when that will happen. So, I'm sticking with the strategy that I think will work best in the long run.

  6. My gas supplier (Manitoba Hydro) uses estimates every other month to charge for gas and electricity. However, there is the option for the customer to do the readings himself and submit them online. I do this every other month to keep from paying $300 for the estimated month and $20 for the month they actually read my meter.

  7. Gene: I did my own meter readings for a few years to avoid the crazy double-sized estimates. After a while, a strange thing happened; the gas company started making more reasonable estimates. So, I don't have to call in my own readings any more.