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The price of natural gas has never been this low

In our previous FRED Blog post, we argued that the price of electricity varies by region and fluctuates but does not appear to increase with respect to other goods. Today, we take a quick look at the price of natural gas.

In the FRED graph above, we’re looking at the price of natural gas at a particular location: the Henry Hub in Erath, Louisiana. This is the connection point of several natural gas pipelines, and local markets are typically priced by a differential from the Henry Hub price. We use monthly prices here to avoid the wild fluctuations of daily prices.

So, how has this reference price for natural gas evolved? It is striking how it’s now the lowest it has ever been. And we haven’t even taken into account the inflation in general prices since the start of this data series. The main factor has been the big increase in the supply of natural gas, in particular through fracking. Another factor has been the building of many pipelines, which allow suppliers to avoid higher prices through arbitrage.

There have been fluctuations, though. One recent example is the winter of 2022, when Russian pipelines in Europe closed at the start of the invasion of Ukraine and increased worldwide natural gas prices. This shock resolved in a year thanks to major energy conversion efforts across Europe.

How this graph was created: Search FRED for “natural gas price” and take the monthly series.

Suggested by Christian Zimmermann.

The price of electricity across metro areas

The Bureau of Labor Statistics collects a lot of data, some of which is available in FRED. For example, there is the cost of household fuels in various parts of the country. The FRED graph above shows the price of electricity in three major metropolitan areas.

What do we learn from this graph? First, there are significant differences across regions. While there are large electricity markets that allow for some arbitrage, they do not appear to be perfect. Obviously, sending electricity across the country to take advantage of a higher price is not free. Second, these differences are persistent and vary little, likely a reflection of these transmission costs that are relatively stable. Third, the cost of electricity has increased quite a bit, lately in particular.

But did the cost really increase? What matters in the end is whether the cost of electricity increased relative to the costs of other goods. To measure this, we modify the first graph to obtain the graph below, by dividing each series by the consumer price index (CPI). (Note: There are CPI series for several major metro areas, but unfortunately they were discontinued in 2017; so, we have to make do with a national series.) Now we see that price of electricity has bounced around, but in the end it has not changed much.

How these graphs were created: Search FRED for “average price electricity” and select the Dallas series. Then click on “Edit Graph,” open the “Add Line” tab, search again, and select Boston. Repeat with Los Angeles. You have the first graph. For the second, within each line, search for series “CPI,” add it, and then apply the formula a/b. Repeat for the other lines.

Suggested by Christian Zimmermann.

Ice cream is a seasonal product, right?

We have published this post in mid-May, which seems like the time people would start indulging in ice cream. It’s not quite “I scream for ice cream” time, but the days are getting sufficiently warm to warrant stocking up cool treats. And ice cream is the quintessential seasonal product that is only in demand when it’s hot out. Right? Just look at the FRED graph for ice cream production: A classic example of seasonality! But wait… These data are very old. How does it look if we use current data?

The FRED graph below shows ice cream production since 1972 (in red). Yes, it is still seasonal, but it less so than in the early years or even a dozen years ago. It’s also striking that ice cream production now is barely higher than it was 50 years ago, despite roughly 60% more population. We added the price of ice cream to our second graph, and here we notice no seasonality at all. One would have expected some, as demand visibly fluctuates through much of the year and production costs may as well.

Keeping ice cream cold in the summer is more challenging, but research shows that ice cream prices do not vary with outside temperature, as manufacturers cannot amend prices quickly enough to adjust to short-term demand fluctuations. It seems this is also true for even predictable seasonal changes.

How these graphs were created: Search FRED for “ice cream,” select the historical production series, and you have the first graph. For the second graph, from the same search result, take the current production series, click on “Edit Graph,” open the “Add Line” tab, search again for “ice cream,” take the price series, open the “Format” tab, and put the legend for one of the series on the right.

Suggested by Christian Zimmermann.

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