Paying More to Stay Warm This Winter

Those really cheap natural-gas prices have left the stage. As a result, it’s a good bet you will pay more to heat your home this winter.
   
Although two of the Kansas City area’s gas companies predict minimal price increases, it still may put a little chill into customers who enjoyed a big drop in prices last winter. Last year, a surge in U.S. natural-gas production and a surplus of the fuel from a warmer-than-normal winter caused wholesale prices to collapse. At their low in April 2012, a thousand cubic feet of natural gas could be bought wholesale in April 2012 for less than $2, about the price of a 20-ounce bottle of Coke at a convenience store.

Eventually the surplus was worked off, and producers pulled back some. That combination more than doubled the wholesale price a year later, and, although it has dropped back around $3.60 lately, it still is clear that natural gas prices have turned up. So get ready for a modest bump in prices. Estimates peg a seasonal increase of up to $60 for the average residential customer.

Missouri Gas Energy and Kansas Gas Energy expect minimal increases for customers. Atmos Energy, which has customers in Olathe and other parts of Johnson County, already has passed along some higher prices to its customers. Atmos in recent years has done especially well keeping down its “cost of gas” charge to customers. The charge covers the wholesale gas price plus transportation and storage fees. Last year, that charge averaged $4.07 for each 1,000 cubic feet of gas a customer used, but “this year it’s going to be more than that,” said Jim Bartling, an Atmos spokesman.

Last winter’s natural-gas prices, the lowest in more than a decade, capped four straight years of price declines. Compared with 2008, prices last year were low enough to save $500 on an average residential customer’s annual gas bill. But those extra-low prices weren’t expected to last, and they haven’t. The average wholesale price of natural gas in 2012 was $2.75 per 1,000 cubic feet, and the Energy Information Administration expects it to be $3.71 this year and $3.95 in 2014. Still, because of the boom in U.S. production, the previous decade’s price spikes, which sometimes topped $13, seem likely to remain just a memory.

“I don’t think we’re going to see that kind of volatility anytime soon,” said Richard Schuck, one of the founders of Energy Support Providers in Leawood, which helps large users buy natural gas. Wholesale natural-gas prices in 2008 averaged $8.69 per 1,000 cubic feet before supplies from underground shale formations surged. Prices dropped more than 50 percent the next year and traded around $4 until they declined to last year’s $2.75 average. It still is early for consumers to figure how much the uptick in gas prices could affect their bills this winter, especially because the weather also will also affect how much gas they use. But this summer, electric utilities reacted by doing less switching from coal to natural gas when they could. “That’s due to the moderate increase in natural-gas prices,” said Peter Abt, the managing director of the consulting arm of the engineering firm Black & Veatch. Abt said that natural gas, even with the recent price rebound, would continue to be very competitive when it came to building new electric power plants because of environmental regulations that favor the cleaner burning fuel and the higher cost of building a coal-fired plant from scratch.

Black & Veatch, based in Overland Park, forecasts that average natural-gas prices will be in the $4 to $4.25 range over the next several years.What could be occurring is a natural-gas market that will have enough to meet demand to keep prices from going too high, but not so awash in the fuel for them to plummet to the lows seen last year, said James Williams, an analyst for WTRG Economics, which tracks energy prices. Producers have cut back on drilling, although existing wells are still delivering natural gas. U.S. production increased from 63 billion cubic feet of gas per day in January 2011 to 69 billion a year later. It has been essentially flat since then and is now at 70 billion cubic feet per day. Even at current prices, natural gas costs one-fifth what oil does, based on their energy output. “Supply and demand are becoming more in line and that’s going to affect prices a little bit, but they’re still competitive,” Williams said.