AUM Predicts Higher Natural Gas Prices will Impact Multifamily

A report published last week by AUM, prepared by that company’s chief energy office Dimitris Kapsis, notes that natural gas prices have been creeping up recently—atypical for the late summer—and posits that now is the time for major users of natural gas (such as owners of multifamily portfolio) to lock in prices.

Lombard, Ill.—A report published last week by AUM, prepared by that company’s chief energy office Dimitris Kapsis, notes that natural gas prices have been creeping up recently—atypical for the late summer—and posits that now is the time for major users of natural gas (such as owners of multifamily portfolio) to lock in prices. “Energy prices are still trading at attractive levels,” Kapsis writes. “Now is a time to review your renewal options, before this recent market uptick becomes an upward trend.”

One factor in a possible further increase in natural gas prices, according to Kapsis, is the weather. Forecasters are predicting an upcoming transition to El Niño, meaning that the northern tier of the lower 48 states will probably experience above-normal temperatures during the fall and winter, while the Gulf coast will see below normal temperatures during the winter. Above average temperatures tend to lead to higher electricity consumption, which would increase natural gas consumption at electric generation stations. Higher demand would mean higher prices.

Also, on the supply side of the equation, supplies of natural gas are returning to a more normal level—the hard winter earlier this year drew supplies down—but perhaps not fast enough to prevent a continuing uptick in prices. U.S. natural gas storage totaled 2.389 trillion cubic feet as of last week, still 20 percent below the five-year average (it was more than 54 percent below average at the end of March), notes Kapsis.

Regional factors are at work as well. In the Northeast, natural gas prices have proven to be more sensitive to temperature than other regional markets. During summer months, the largest increase in natural gas consumption comes from the electric power generation sector, due to the increased need for cooling in homes, and the Northeast is increasingly reliant on natural gas for power generation. In 2013, natural gas-fired power provided 44 percent of net electric power sector generation in the New England U.S. Census Division, versus a 26 percent naturally.

“We have seen prices begin to move upward when many market indicators would have normally driven it downward,” says Kapsis. “Mild weather, low energy consumption, and increased gas storage injections typically hold prices steady, if not cause them to drop.”

AUM is an energy management service provider for the multifamily industry. Among other things, it offers energy management planning, facility auditing and energy procurement. The full report is here.