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9.23.05 Natural gas/hurricane update Despite the temporary loss of some natural gas production from the Gulf of Mexico, natural gas utilities are confident supplies will be adequate to serve homes and businesses this winter as contracted. Natural gas utilities have already put significant amounts of natural gas in storage for use on winter's coldest days, and they further can continue to rely on natural gas produced from non-Gulf areas and Canada. Natural gas prices already had risen this summer due to greater demand for natural gas-fired electric power generation for air conditioning. The disruption of natural gas production as a result of hurricanes forced prices up further. Customers should anticipate paying more for natural gas this winter because of the tight market and should consider energy efficiency measures as well as enrollment in utility "budget" payment plans, where available, to make monthly payments more predictable. (To sign up for M.U.D.'s budget plan, call 554.6666.) It is too early to say if Hurricane Rita will disrupt the flow of natural gas for a period lasting only a few days or a longer period. That depends on the path and power of the hurricane. As of Friday morning 9/23, Hurricane Rita's path was projected to sweep across the Gulf of Mexico and make landfall near the Texas/Louisiana border, a key area for natural gas production. The Gulf provides about 23 percent of U.S. natural gas supply, with a significant portion of rigs and pipelines located in the area targeted by Rita. In anticipation of Rita, natural gas production companies have evacuated their rigs in affected areas of the Gulf. Evacuations will cause some Gulf production to be shut-in for a period that may be as short as a few days, but may be longer if Rita's high winds, waves and water surges cause significant damage to natural gas infrastructure in the Gulf. As of Friday 9/23, a cumulative total of 132 billion cubic feet of natural gas has been shut in due to Hurricanes Katrina and Rita. This represents less than 1 percent of total annual U.S. supply. Whatever the degree of damage inflicted by Rita on the natural gas infrastructure, the hurricane is likely to cause natural gas prices to increase, because the balance of supply and demand in the market is already extremely tight. The natural gas market is tight because the popularity of natural gas is rising while federal and other restrictions make it difficult for producers to get fresh natural gas supplies to market. In fact, natural gas prices have been on a steady march upward since early summer. In early August, the Energy Department's Energy Information Administration (EIA) was forecasting increases in natural gas spot market prices ranging from 18 to 25 percent higher than last year, because of unusually warm weather patterns straining a tight market. Nationally, it has been about 17 percent warmer than normal this summer, compelling the operators of power plants to buy large volumes of natural gas to power air conditioning. In the following regions, summer temperatures have been warmer than normal.
EIA dramatically revised its energy price forecasts after Hurricane Katrina. On September 14, EIA told a congressional committee it now projects an average increase of 47 percent for natural gas home heating this winter, with some areas of the country possibly seeing increases as high as 77 percent. EIA will issue a winter heating fuels forecast October 12. Even natural gas utilities that secure their natural gas supplies from non-Gulf regions, (Texas/Oklahoma/New Mexico, intermountain West, Appalachia, Canada, etc.) are likely to see higher prices for those supplies because of increased competition for available natural gas. Utilities are doing their best to cushion the impact of higher natural gas prices on home heating customers. About 30 percent of the natural gas delivered by utilities in the coldest month comes from gas in underground storage. Utilities buy natural gas during the summer months, when prices are historically the lowest, and store the gas for use during the colder months. EIA's latest (week ending 9/16) survey of underground storage shows that it is at 2.8 billion cubic feet nationally, putting storage on track to reach adequate winter heating levels by late October, despite Katrina and Rita. Many utilities make customers' natural gas bills more predictable by offering "budget" or "level" payment programs, which are particularly attractive to people living on fixed-incomes. |
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