Natural gas prices drop, heating bills could follow

[Bravo Zulu]

Natural gas prices drop, heating bills could follow
Friday, August 29, 2008
By Elwin Green, Pittsburgh Post-Gazette

For Americans worried about increasing energy costs, here's a surprise they may welcome: The wholesale price of natural gas is dropping, and it just might result in lower home heating bills this winter.

In two months, the wholesale price of natural gas on the New York Mercantile Exchange has fallen from more than $13 per million British thermal units to $8.39 at yesterday's close.

Why?

First, supply has been increasing. According to the American Gas Association, the amount of gas in underground storage, 2.76 trillion cubic feet, is 6.8 percent lower than at this time last year -- but it is also 2.6 percent above the five-year average. More importantly, inventories are growing. The group said there were 1,998 drilling rigs in operation as of Aug. 22, nearly matching a record set in March 1985, and natural gas drilling represents 80 percent of their activity.

A second reason is that drilling has not been disrupted by hurricanes, although the markets have kept a wary eye on Gustav, which is threatening the Gulf Coast.

Natural gas inventories typically increase during the "net injection season" that is drawing to an end, when gas companies stock up in advance of winter.

All three of Pittsburgh's natural gas companies say they believe they have adequate supplies.

"We have been filling our storage facilities throughout the summer, and they're almost at maximum capacity," said Dominion Peoples spokesman Elmore Lockley. "We most certainly have an adequate supply of natural gas, even if we had a colder than normal winter."

The only thing that could present a supply problem, Mr. Lockley said, would be if a hurricane interrupts drilling operations.

Will rising supplies and falling wholesale prices result in lower gas bills for customers of Pittsburgh's three natural gas utilities? Maybe.

The companies adjust their "gas cost recovery rate" every three months to comply with state law requiring that they neither make nor lose money on natural gas. If that were the only factor determining a homeowner's gas bill, that bill would likely go down on Oct. 1.

But the companies also file annual rate changes with the state Public Utility Commission to make up the difference when actual costs do not line up closely enough with their quarterly rates. In April, Dominion filed for an annual rate increase of 18.8 percent, to be effective Oct. 1. The PUC has not yet rendered a decision.

The gas cost recovery rate is not the only element of a gas bill. That rate pays for the gas, but the companies still have operational costs to cover. Those become part of the "base rate."

Columbia Gas of Pennsylvania is still awaiting PUC approval on a request filed in January for a base rate increase to boost its annual revenues by $59.9 million. The increase would help to pay for $1.2 billion in infrastructure improvements planned over the next 20 years. That filing was the first for a base rate increase by Columbia since 1995, said spokeswoman Leslie Orbin.

Equitable Gas Co. has a request on the table for a base rate increase of $51.9 million, filed in June. Spokesman Dave Spigelmyer said it is the company's first base rate increase request since 1997.

For consumers, then, dropping natural gas prices may be offset by increases in base rates. But if the new base rates last as long as current ones have, there may be another silver lining: further increases in supply over the long term.

Mr. Spigelmyer said advancements in technology have helped to make available gas that was not accessible before. He noted that the Marcellus shale, the Appalachian geological formation, contains as much as 500 trillion cubic feet of natural gas, enough to fuel current U.S. needs for 25 years if captured. But only within the last year or so has it become a target for gas companies.

"We all knew it was there," he said, "but without horizontal drilling technology we weren't able to capture it economically. Now we can."

http://www.post-gazette.com/pg/08242/907869-28.stm

[alittlelark]

1. They'll fall until the election.....

THEN - the sky's the limit... until Obama caps them.

[Fearless]

2. When it gets cold again it will go up again... like always.

[tech3149]

3. The most important sentence

"The only thing that could present a supply problem, Mr. Lockley said, would be if a hurricane interrupts drilling operations."
Given the current weather conditions, I'm sure they'll find an excuse to bump up the price within the next week or so. Glad I don't have to pay tribute to Columbia any more.