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How the U.S. Deep Freeze Impacts Energy Demand and Prices

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 u.s. deep freeze impacts on energy prices


Across the eastern United States, record low temperatures are substantially increasing the amount of energy needed in order to keep homes and businesses operating at optimal temperatures.

How the Deep Freeze Impacts Energy Demand

During weather emergencies like the deep freeze, the demand for energy increases substantially.

People are trying to warm their homes and businesses, and HVAC units across the region are forced to work harder in order to supply that critical heat. In some areas, like New York, energy companies even found themselves warning of potential shortages as they struggled to provide energy for all the homes and businesses that need it. It's not just New York that is struggling: in South Carolina, citizens have been urged to scale back their energy usage as much as possible in order to reduce the possibility of shortages. In other areas of the country, outages have already been experienced, leaving people searching quickly for alternate sources of heat. 

In response to the need for heating fuel, the Federal Motor Carrier Safety Administration has already declared a state of regional emergency. This move is designed to help prevent shortages, allowing commercial drivers to work overtime in order to provide propane and heating oil to citizens who are impacted by the deep freeze.

Since temperatures have plummeted, much of New England--which usually relies on natural gas--has turned to oil in order to meet the increased energy demands of homes and businesses. Throughout the freeze, only about a quarter of the energy demand has been filled by natural gas. This demand has remained consistent across the United States: plants are using more oil than they've used in the past three years. Coal usage has also shot up as a result of the need to produce more power throughout the deep freeze. 

Direct Energy Business Senior Market Strategist Tim Bigler says the deep freeze puts more pressure on natural gas storage for the short term, but as long as temperatures warm, freeze-off gas should come back to record levels.

Direct Energy Business Meteorologist Beau Gjerdingen said we are seeing the coldest first week of January on record, dating back to 1950 based on National Gas Weighted Heating Degree Days.

The frigid air is thanks in part to a “swipe from the tropospheric polar vortex,” Gjerdingen said. “In fact, Tuesday was the coldest single day of the 2000s based on U.S. population weighted temperatures.”

Gjerdingen said next week features more widespread cold across the central and eastern U.S., but not nearly as intense as this week.

“Heading just beyond mid-month, there are some indications that conditions will begin to moderate as the polar vortex returns a bit closer to its home (the North Pole).”

How the Deep Freeze Impacts Energy Costs

By the end of December, the cold snap had already caused residential heating oil prices to soar 13%--and unhedged businesses are paying just as much or more for their power in many areas.

Even before the deep freeze, energy prices were projected to grow substantially over the winter: the U.S. Energy Information Administration predicted growth of 12% for natural gas, 17% for home heating oil, 18% for propane and 8% for electricity.

“Short term regional natural gas prices have rallied due to record demand, but the prospect of a warmup has kept prices in the Henry Hub region subdued,” Bigler said. “But northern tier forward regional gas and electricity energy prices continue to reflect a ‘risk’ premium.”

What About Fixed-Rate Plans?

If you have a fixed-rate energy plan, you may think that you're safe. Your energy cost doesn't rise or fall based on market prices, which means that you don't have to worry about the cost of each individual kilowatt hour skyrocketing--though you'll still have to pay for the increased energy demand to keep your business warm in the frigid temperatures.

If you're worried about your energy budget, however, make sure you check your contract: many providers have stipulations in place that will allow them to pass on extreme cost increases, like those experienced during energy shortages, to their clients. You'll need to carefully read your contract in order to determine how much your energy bill can increase as a result and how long you can expect that increase to continue. 

As a business owner, you'll also need to keep in mind that your energy use may have increased substantially during this deep freeze—and because of record low temperatures, you may see record high usage.

Decreasing energy usage anywhere possible may help even out your overall usage so that the increase on your bill won't be quite so noticeable. 

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Posted: January 04, 2018