Chilly Forecast for Heating Bills

Natural GasUtilities say users could pay 50 percent more this winter

By Leslie Brooks Suzukamo

Consumers worried about filling their gas tanks this summer probably don’t even want to think about their heating bills.

But state energy officials and utilities are.

And they worry that come winter, heating customers could be paying up to 50 percent more for natural gas than last season.

That’s how much the fuel most Minnesotans use for heating their homes is up over last year. And Xcel Energy and CenterPoint Energy, the Twin Cities’ dominant heating utilities, are just starting to calculate how high bills may go if the present trends hold. Natural gas accounts for about 80 percent of a typical heating bill.

CenterPoint said it believes the average bill for calendar year 2008 will fall between $1,100 and $1,200, up from an average $1,043 in 2007.

Minneapolis-based Xcel Energy said a 50 percent increase in the cost of natural gas could result in a roughly 40 percent increase in a homeowner’s bill over last season, as long as all other factors — like temperatures and the length of winter — are the same.

Usually, natural gas prices drop in the spring, and utilities like CenterPoint and Xcel take advantage of the dip to buy gas now and store it for winter.

Xcel stores about a quarter of the natural gas it uses for winter, and the utility expects to begin filling storage capacity through the summer, said Tim Carter, director of gas supply.

The spring fluctuations in natural gas prices mostly are invisible to consumers because folks turn off their furnaces.
Watching the commodities markets, CenterPoint, the state’s largest natural gas provider, has been bracing for higher spring prices since March, said David Baker, division vice president for Minnesota gas operations.

The Houston-based utility, which serves 790,000 customers in Minnesota, says prices for January 2009 delivery on the New York Mercantile Exchange have hovered in the $12 range per million BTU this spring, compared to $7.71 for November 2007 to April 2008.

That makes prices today similar to those after Hurricanes Katrina and Rita wrecked natural gas drilling and transportation facilities in the Gulf of Mexico in fall 2005, severely reducing supply, Baker said.

So what’s driving prices this time? It’s a combination of factors, said natural gas analyst Kobi Platt of the Energy Information Administration, the research arm of the U.S. Department of Energy.

One thing the commodities markets are reflecting is fear of the unknown. Platt said a mild summer and no major damage from hurricanes could actually cause prices to drop in the fall, and utilities might not want to lock in higher prices by buying on the futures market now.

Other factors include:
Hurricanes Rita and Katrina: Ever since then, gas utilities have started buying more gas in the spring as a hedge before hurricane season, Platt said. And that drives up prices.

Dwindling reserves: With the colder April this year, natural gas in storage reserves is below last year’s level. The reserves still are at a five-year average, but worried utilities are buying now to avoid possible shortages, Platt said, and that also is driving up prices.

Summer worries: As electricity plants increasingly switch to natural gas for power, a hotter-than-average summer nationwide would mean more natural gas will be used to provide electricity for peak air conditioning periods. That will draw down winter reserves.

Speculators. Investors and middlemen on the commodities markets may be pumping up the price, just as they are for oil, Platt said, as a hedge against the falling values of other investment vehicles, like the dollar.

Read the rest of this story at Pioneer Press.

MN Natural Gas Fact Sheet

Natural Gas and Electricity Costs and Impacts on Industry Whitepaper

3 Responses to Chilly Forecast for Heating Bills

  1. Blake May 28, 2008 at 4:57 pm #

    Great Article. I honestly believe we ARE headed in that direction. A quick example: oilheat users. They’re running out of money to keep their heating supply. Working for NORA I have seen the toughest people break down and just give up. We can’t let that happen. Someone should tell them about bioheat. They will still use oil, but a much better, biodegradable kind. It can help conserve 400 MILLION gallons of oil. Conservation is the key to lower prices in my honest opinion. Here’s the site i got info from: oilheatamerica . com/

  2. David May 30, 2008 at 6:28 am #

    “Conservation is the key to lower prices in my honest opinion.”
    You’ve got to be kidding. Conservation is not the key. Drilling for more oil/gas is the key. How can you get more of something if you try and use less. Yes waste not want not but, if you have 5 of something and only use 2 you don’t get 7.

  3. Rob N. Hood June 2, 2008 at 9:40 am #

    Of course conservation is part of the answer. People are driving a lot less right now, and that should help lower gas prices- it’s simple economics. We need to diversify our energy resources and start including more renewables. Until then we will all continue to get ripped off by Big Oil and rich investors.

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