Since June 2020, when COVID-19 shut down much of the U.S. economy, natural gas prices have been up a staggering 525%. Put differently, today’s gas prices have skyrocketed to levels unseen since 2008—and several factors could continue to drive prices even higher.
With the ongoing war in the Ukraine and uncertainty in Europe, an increase in liquefied natural gas (LNG) exports, and warmer-than-average summer temperatures in much of the U.S., natural gas inventories are below historical averages. This leaves the market with less of a buffer going into peak winter heating season demand, providing potential upside price risk. While we have recently seen some modest dips in gas prices, Vicinity is still seeing record highs in many of the cities we serve.
By the numbers: what we know and what we could expect
According to the U.S. Energy Information Administration, the Henry Hub natural gas spot price averaged $8.80 per million British thermal units (MMBtu) in August, up from $7.28/MMBtu in July. September’s Henry Hub spot price settlement was $7.99/MMBtu versus $5.024/MMBtu seen during the same period last year.
The October NYMEX Henry Hub contract settled at $6.868/MMBtu, and the expectation is that the Henry Hub price will average about $5.76/MMBtu in November through December of 2022 and then fall to an average of about $5.18/MMBtu in 2023 as U.S. natural gas production rises. So even though there seem to be some price increases in our future, the hope is that the new year could start to bring some stabilization. After record-setting demand for power generation this past summer, seasonal demand is set to reduce in the next few months.
How is Vicinity helping?
Because of the uncertain environment, Vicinity is taking action to cost-effectively procure fuel and reduce price volatility to limit our customers’ exposure to price spikes during the prime heating season this winter.
In addition to continuously monitoring the markets and leveraging our considerable backup distillate fuel supplies, we’ll be pre-purchasing fuel to help ensure efficiency and reliability. Our market experts believe this approach will serve our customers’ best interests and achieve more bill stability and budget visibility.
The global movement away from fossil fuels
Without a doubt, there are challenges ahead for all building owners that rely on natural gas – and not just in terms of cost. As reliance on fossil fuels continues to exacerbate climate-related impacts and global leaders implement legislation to aggressively reduce carbon emissions, it’s clear that natural gas is not a progressive or healthy solution for our collective future.
Of course, some critics raise concerns about renewable energy’s cost and affordability. Still, the fact remains that our current energy crisis has affected everyone financially and reinforces the obvious—that fossil fuels are the elephant in the room.
However, despite the global energy shortage, Vicinity is well equipped to navigate these challenging times—unlike buildings with boilers that rely solely on natural gas. With multiple power supplies, backup generation, and several water and fuel sources, district energy systems are reliable, robust, and sustainable and provide safeguards to ensure 24/7 energy delivery.
Like Vicinity, many leading district energy systems (including those in Vancouver and Copenhagen) are implementing innovative strategies, like renewable fuels, heat pumps, and electric boilers, to further reduce their use and reliance on fossil fuels.
Vicinity’s Chief Customer Officer Jackie Bliss said it best in her recent article with Commonwealth Magazine:
“There will always be reasons not to act swiftly in our transition to a greener, cleaner economy, but now is not the time to lose resolve. Rather, the recent fears about energy security mean we should immediately triple down on our investment in renewables. That means more offshore wind and solar if it accomplishes our shared goals of improved energy security while also combatting climate change, an existential threat to our planet and future generations.”
A closer look: the advantages of district energy
While the global energy shortage will impact everyone, there are substantial benefits to being part of a district energy system. Here are a few ways Vicinity’s status as a district energy provider will help serve our customers through this global challenge:
- We can negotiate fixed prices and better rates due to our superior bargaining power as a participant in energy markets, compared to a single building purchasing gas for its boilers.
- Vicinity monitors customer usage carefully to ensure enough supply to keep all our customers functioning at their normal levels, even during an extreme weather event or a shortage. This is a huge advantage over individual boilers, where building owners must try to anticipate their load and make sure to order enough on an individual basis.
- Most Vicinity district systems are fuel-agnostic, meaning our generators (chillers, boilers, etc.) can utilize various fuels, including renewable and alternative fuels, instead of being at the mercy of gas companies.
- Vicinity uses a diverse fuel mix, including renewable biogenic fuel, so we’re not reliant on natural gas.
- Furthermore, with the electric grid’s growing adoption of more renewable sources, we’re working on electrifying our district systems – a move that will drastically reduce our use of natural gas and conventional fossil fuel.
Looking ahead
There’s no question that we have a substantial problem on our hands. But the truth is, the solution isn’t only obvious—it’s already here. With so much uncertainty in tomorrow’s landscape, we need to recognize that what once seemed to be the answer is simply failing to keep up with today’s realities.
Isn’t it time we pivot away from fossil fuels and create a greener, more sustainable future?
The benefits of renewable energy will far outweigh the consequences of fueling the current solution. And district energy is just one example of how we can benefit from existing infrastructure (which reduces cost and saves space) to create a lower carbon footprint and a more reliable and affordable way to power us into the future.
The responsibility is now on us, and we have the forward-thinking means to start achieving energy security and a cleaner tomorrow right now—before we pay the price.
