CLEVELAND, Ohio — Dominion East Ohio customers who buy their gas from suppliers participating in the utility’s annual wholesale auction will see their rates fall nearly 14 percent next week.
Dominion will adjust its Standard Choice Offer, or SCO, to $3.34 per 1,000 cubic feet, or Mcf, on Valentine’s Day. The new price, which will run through mid-March, is 54 cents less than the current rate of $3.88 per Mcf.
The new price will still be the highest of this winter, which began with a November price of $2.71 per Mcf, and higher than last February’s $2.21 per Mcf.
Dominion estimates the average residential bill this month will be about $93.42, up by more than 34 percent from the average residential bill last February.
So, what’s happening?
Natural gas prices have been mostly trending higher since March 2016 when the contract price set on the New York Mercantile Exchange closed at $1.71 per Mcf.
The slow price climb out of that basement has occurred even in Ohio where a multi-year glut of gas has kept prices below national NYMEX prices.
The price increases reflect a deep cutback in the number of drilling rigs and simultaneous new demand from gas-fired power plants, increased gas exports to Mexico as well as the first gas liquefaction plants. Those plants convert gas to a liquid for shipping overseas, where prices are much higher.
There are 21 rigs drilling today in Ohio, for example, according to the Ohio Oil and Gas Association. That’s an increase from a few months ago but still about a third of the 59-rig high in 2015.
These developments have reduced the amount of gas in storage for winter use. The latest report from the U.S. Energy Information Administration this past Wednesday shows total gas in storage down 11 percent from year-ago levels despite what has been, overall, a mild winter.
Dominon’s SCO is lower than most of the prices that independent suppliers are offering residential customers in retail contracts. Those contracts are typically long-term but often include an early termination fee if a customer wants to bolt for lower market prices. A few of the supplier month-to-month contracts can be lower than the SCO, but there is no way to know how the supplier set the price.
In contrast, SCO prices reflect the monthly bulk contract price set on the New York Mercantile Exchange.
Independent gas suppliers who won the right to participate in the program after a tough all-day auction that drove their profits to a thin margin agreed to charge the same price to all SCO customers.
Dominion’s SCO price is unique in Ohio because it reflects the surplus of gas in eastern Ohio, West Virginia and southwest Pennsylvania. For the last year, Dominion’s SCO has been 5 cents below monthly price set on the NYMEX.
In other words, the independent suppliers who survived Dominion’s auction a year ago were able to bid below the national commodity price because an oversupply of gas here drove done prices. That may be slowly ending, encouraging producers to begin drilling new wells. That could begin to re-balance supply with demand.
The next Dominion supplier auction, set for Feb. 21, should indicate the extent of that re-balancing.
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