Natural Gas Loads

Since the nation requires more natural gas (and other fuels) in the winter, the laws of supply and demand usually drive up costs in the winter. In addition, the coldest months set the peak requirements for production and distribution facilities and, therefore, most of the fixed costs for the entire industry. Allocation of these fixed costs to natural gas purchased in this period also drives up the cost of winter gas.

Conversely, in the non-heating season months, when demand is lower, natural gas is less costly. In addition, because fixed costs are mostly allocated to winter gas supplies, non-winter gas gets somewhat of a free ride and is tied primarily to a variable cost already driven down by lower demand. To the extent that some fixed costs can be recovered through (or spread over) non-winter gas sales, LDCs and pipelines benefit by building their system load factor by increasing non-winter sales. LDCs in regions with moderate climates or where industrial process demand greatly exceeds heating demand will typically have higher load factors and experience a lower differential between winter and non-winter costs. The national effects of supply and demand as a whole, however, will still affect costs in these regions.

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Guide to Alternative Fuels

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