4.28.09

Natural gas cost trend is downward
By: Virgil Larson, Omaha World-Herald

The cost of heating a home with natural gas this past winter was among the lowest in recent years.

Next winter's may be lower.

"We believe the lower natural gas market prices will translate into lower customer bills this winter heating season as compared to last winter," said Trent Cozad, a vice president of gas operations at Black Hills Energy Co. in Omaha.

"Only time will tell how much."

With prices 75 percent below last July's highs, utilities are locking in part of their supply for next winter. Black Hills, a major provider of natural gas in the metro area, usually begins buying in May for the next season. This year it started in January as prices plunged.

The Metropolitan Utilities District is not yet forecasting next winter's heating costs for its Omaha area residential customers. But M.U.D. President Tom Wurtz does not foresee a sharp rise in prices.

"I think they'll stay in the lower range," Wurtz said.

That's barring an increase in crude oil, now at less than $50 a barrel, to $100 a barrel, he added. Also, Gulf Coast hurricanes could disrupt production and transportation of gas, he and Cozad said.

A quick turnaround in the economy could change the price outlook. While everyone would like to see that, a more rapid recovery than what now seems likely would increase nonresidential demand for gas and put upward pressure on prices.

The outlook for next winter stands in sharp contrast to the picture less than a year ago.

Crude oil hit nearly $150 a barrel last summer. Natural gas prices, which move with crude, also rose as U.S. supplies of gas in storage fell.

In August, utilities were estimating rate increases of 15 to 20 percent for the 2008-09 winter.

Using 15 percent, M.U.D. computed the average residential gas bill at $584 for the four-month, December-March heating season.

Then the recession caught up with gas supplies and prices.

In October, M.U.D. revised its estimate to $508. With winter over, the bill came in at $426, almost $160 lower than the August estimate and the second lowest in the last six years, even though 2008-09 was colder than normal. The cost per unit of gas also was the second lowest.

Early good signs for next season's prices include the 1.7 trillion cubic feet of natural gas in underground storage in the United States on April 17, the latest available figure. That's 36 percent more than a year earlier and 23 percent higher than the five-year average.

The Energy Department said earlier this month that, because of the recession, gas use by factories may drop 7.4 percent this year. Industrial uses and power plants each account for 29 percent of U.S. gas consumption.

With forecasts of a gradual, rather than sharp economic recovery, natural gas futures dropped on the New York Mercantile Exchange on Monday to their lowest since September 2002.

Gas for May delivery traded as low as $3.155 per million British thermal units before recovering to close at $3.253. Some forecasts predict that futures will drop below $3.

Black Hills sells gas across Iowa, including Council Bluffs, and in 110 eastern Nebraska communities, including Lincoln, Papillion, Bellevue, La Vista, Blair and Columbus.

The cost of the gas makes up about 75 percent of a customer's monthly bill. The rest is operating and infrastructure costs.

Media Relations: 402.504.7169
After hours and on weekends: 402.504.7946

Click here to add your e-mail address to the newsrelease distribution list.

News archive