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Natural Gas Contracts

6145 Views 9 Replies 9 Participants Last post by  OhGreatGuru
What does everyone here think of locked-in natural gas contracts? We signed up with Direct Energy 5 years ago and now it's time to renew. They charge 34.9 cents per cubic meter over the 5 years of the contract. I think that Union gas is currently charging around 23 cents. If I don't hurry up and decide, they'll automatically sign me up for a year at 41.9 cents!
Anyway, I'm interested in what your thoughts are on the subject.

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I don't lock-in natural gas rates because I simply don't see the value in it. Natural gas costs about 1/2 your gas bill and would run about $500 to $600 for a typical family. It might double but I'm more than willing to accept that hit in exchange for usually ending up spending less with a floating rate. I haven't seen studies on this topic though but my feeling is that a floating rate would be cheaper in the long run.
Watched a show on tv (marketplace I think) about the door to door commission salespeople pushing contracts. Anyone employing this type of person is obviously making more money than they should be, so how does the consumer save money with the contracts?

We float with market rates.
I have a suggestion. Rather than signing one of these contracts, which often have dubious reputations, why not buy some shares in natural gas stock? If the price goes up, the blow from increased heating bills will probably be softened by improving stock returns. If the price goes down, your stocks may take a bit of a hit but you should have lower, or at least stable, heating bills.
My thoughts exactly Spidey. I used the same strategy when gasoline prices were going up by having investments in oil companies and income trusts. What I lost at the pump was more than made up for by stock appreciation and trust distribution increases!
Here's a link to historic Natural Gas prices, which you could compare to your fixed price contract of the past to help you with your decision based on past history. Looks like the average price (not adjusted for seasonal uses) was about $0.29 from 2006 to current date.
Investments in oil and gas companies, although they may track changes in gas prices, are not a perfect hedge by any measure. Also, such investments are exposed to risks that do not relate to gas prices, such as interest rate risk, operational risks and market risk. If you are seriously worried about your natural gas bill increasing, a fixed rate contract is the way to go. It's not a bad product/service.

That being said, I have found the tactics of the gas marketing companies less than savoury. Automatic renewals are a ridiculous policy. Incidentally, I worked for a gas and electricity marketing company in Ontario briefly in 2004. I was given a ridiculous and misleading sales pitch that I was supposed to recite for each potential customer. The drones that go around signing people up only get $75 per contract (maybe a bit more these days) and no fixed salary. So, have a little sympathy when they knock on your door (but keep your guard up).
Haven't invested in natural gas, but I think this is what the future looks like it will be leaning on. Better to invest now than later.
Thanks to everyone for taking the time to reply with your thoughts, ideas and links. I feel much more confident about making this decision now:)
Thanks again,
I would suggest watching the CBC MarketPlace episode "Power of Persuasion", originally aired March 20, 2009, about door-to-door energy marketers.
I wouldn't touch these companies with a 10 ft. pole.
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