The heating/cooling capacity of our heat pump is 3 tons. This is pretty normal sizing for medium sized houses. 3 tons of heating works out to a rate of 36,000 BTU/hour. Natural gas is priced per thousand cubic feet (Mcf)*. At 80% efficiency, one Mcf of natural gas releases about 1.049 million BTUs when burned. This means that an equivalent amount of heating consumes 0.0342 Mcf per hour. According to DOE resources, in October 2006, residential natural gas prices were running about $12.74/Mcf. At that price, it would cost us $0.4372/hour to heat.

With the demand for heating at 5 hours a day during an cold month, that $0.1206 per hour difference could cost us an extra $14.95.

Anyway, back to contango. It isn’t, as my previous use would suggest, a verb. It is a term used to describe a situation in futures trading when the price for future delivery of a commodity is higher than the spot price. It is a normal condition arising from the fact that holding a non-perishable commodity generally costs something to the holder. That commodity you have to deliver in the future ties up storage space and the costs involved are figured into the futures contract. It is the price to pay for the guarantee that the commodity in question will be available when you need it without you having to store it. If, on the other hand, you can buy the commodity on the spot market and store it more cheaply than the party you’d be making a futures contract with… well, you do the math.

* Yes, I am well aware of the fact that abbreviating “thousand cubic feet” as Mcf is completely counterintuitive. It is, oddly enough, a Roman numerial type of deal with ‘M’ standing in for 1000. “Hundred cubic feet” is thus abbreviated Ccf. The same applies to BTUs: MBTU is actually 1000 BTUs. One million is, thusly, MMBTU. I don’t make this stuff up.