Conflicting Data on Natural Gas Price Trends

In two separate articles in the October 2, 2008 Albany Times Union, the price of natural gas is either going to hold steady this winter or increase by 20 percent. I guess we could flip a coin, but that would be too accurate a prediction.

In the first piece, the paper cites the Natural Gas Supply Association, which expects gas production to be about eight percent higher this winter than last winter, with more wells operating. The group expects the slowing economy to reduce industry demand for gas and that an expected milder-than-normal winter also should put downward pressure on prices.

Separately, the Times Union reports that a call on October 1st between the head of policy analysis for the American Gas Association and reporters revealed that natural gas for heating homes is expected to increase between 19 and 20 percent from last year. The paper estimates that the typical household using 867 therms will see their bills increase by $200 for the natural gas alone, to $1,239. During the summer, some, including PULP predicted increases of 50 percent or more. See Niagara Mohawk Residential Gas Bills Heading Toward 58% Increase in January 2009. The spokesman noted that the price peaked in June at over $14 per million BTUs, but had dropped below $9 in August. Last winter, the spokesman said that prices hovered around $7.

According to National Grid's forecast of monthly gas supply rates, the current prediction is that rates may increase to $1.09865 per therm in February 2009 for Service Classification 1 from $0.93363 per therm in February 2008, approximately an 18 percent increase since last winter. If we have cold or even normal temperatures in the winter, customer bills could exceed those of the winter of 2005-06, which were the highest in memory.

The difference in prices may be due to timing differences. The NGSA appears to be referring to current and projected wellhead prices for the winter months. Gas companies, however, buy natural gas for their customers and store it, or enter into long term contracts for future delivery, and so the bills for next winter will reflect some the higher cost gas purchased earlier this year. In the past, utilities had more diversified portfolios of gas supply, buying part of their requirements several years in advance. Today, New York's gas utilities, at the urging of the PSC, do not buy ahead more than a year or so, and thus prices faced by consumers are more volatile than they used to be. This causes hardship to customers, especially those living from check to check on fixed incomes.

The recently announced increase in HEAP funding and income eligibility will be a necessity for thousands of New York families -- regardless of which prediction is accurate.
Lou Manuta