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Ample supplies of gas stabilize prices
January 27, 2014 - Ben Klein
Associated Press, Post-Gazette
A bitter cold snap has furnaces working overtime and heating bills climbing, but Western Pennsylvania residents will pay less than they would have five or 10 years ago as Marcellus Shale production has fortified natural gas supplies.
Regional natural gas prices, though projected to climb slightly as a result of the recent cold weather, are still less expensive than they were in 2004 and '09 in inflation-adjusted dollars.
"And, of course, we all know why," said Addison Armstrong, a Pittsburgh native and senior director of market research at Tradition Energy, an energy consulting firm based in Stamford, Conn. "Ten years ago, Pittsburgh was a delivery point along a series of points that brought gas from Gulf Coast to the Northeast."
Now, the region sits on one of the highest-yielding natural gas fields in the world, the Marcellus Shale, and that supply has shielded customers from drastic price fluctuations that might come with a recent increase in demand.
"The supply of gas in Western Pennsylvania, eastern Ohio and West Virginia is more than is needed to satisfy the demand of residential and commercial heating," Mr. Armstrong said.
Make no mistake, heating bills will rise for most consumers this month, but only because consumers are using more natural gas.
Peoples Natural Gas, a Pittsburgh-based utility, projects the average gas bill for January will climb to $198, up from the $173 customers pay in an average January, company spokesman Barry Kukovich said. The company projects customers will use an average of 20.1 Mcf (thousand cubic feet) of natural gas this month, up from 17.4 Mcf in a typical January.
"What's happening is that they're just using more gas," Mr. Kukovich said.
Most of the natural gas used today was purchased and stored over the summer months, and the price consumers pay is set on a quarterly basis, before this arctic chill was even a gleam in a meteorologist's eye. Pennsylvania state law prohibits utilities from marking up the cost of natural gas, which accounts for about 50 percent of a consumer's heating bill.
Consumers will likely see higher natural gas prices this spring after utilities file a quarterly gas cost adjustment with the state's Public Utility Commission. Natural gas futures traded above $5 per Mcf Friday, the first time the commodity surpassed $5 on the futures market in the past three years.
Jennifer Kocher, a spokeswoman for the PUC, said the commission expects utilities will pay slightly more for natural gas this spring as a result of increases in demand, perhaps between $5 and $8 per Mcf.
"This is a colder winter than it was last winter, so we would expect to see prices go up somewhat," Ms. Kocher said. "But we're not seeing any supply issues."
Supply problems can cause more havoc than these upticks in demand, she said. And supply issues have been alleviated by the shale boom.
In the wake of Hurricane Katrina in 2005, the city gate price of natural gas -- or what utilities pay for the commodity -- climbed as high as $13.29 per Mcf in Pennsylvania.
"Supply is fine," Mr. Kukovich said. "It's larger because of the Marcellus Shale. It's become much more stable. This whole area used to be affected really heavily by storms in the Atlantic and the Gulf, and we're no longer affected by that."
Additionally, the cost of transporting natural gas is greatly reduced, which helps reduce the costs, Mr. Armstrong said.
In the meantime, there are many things people can do to keep their heating costs as low as possible, said Rachel Ford, a spokeswoman for Columbia Gas of Pennsylvania.
Weatherizing a house or an apartment can greatly reduce home heating costs, by sealing off drafts and making sure heating ducts are unobstructed. Ms. Kocher said the PUC recommends people set their thermostats below 70 degrees, and lower if possible, to reduce the strain on furnaces.
She also suggested sealing off areas of the house that are being unused -- closing the heating vents in those rooms and placing a towel under the door -- so that warm air isn't being wasted.
"All of those things can really help," Ms. Kocher said.
Columbia Gas has a billing payment assistance program, and Columbia and Peoples are sponsors of the state's Low Income Home Energy Assistance Program, which aids low-income families in the winter months.
Most families are finding it easier to keep home heating use down than they were in the past.
Technological advancements have helped reduce the amount of energy residents use. Most modern furnaces burn gas with at least 90 percent efficiency, meaning 90 percent of the gas burned is converted to heat. In 1994, when temperatures famously plunged to -22 degrees Fahrenheit in Pittsburgh, a record low, the majority of furnaces burned fossil fuels with less than 80 percent efficiency. Congress had just begun regulating efficiency standards.
As a result, consumers used more. According to the Energy Information Administration, a branch of the U.S. Department of Energy, all Pennsylvania residents combined used an average of 17 percent more natural gas in the first three years of the 1990s than they did in the first three years of the 2010s, the most recent data available, despite a 13.3 percent growth in the number of consumers over that time.
During the cold spell of 1994, an energy shortage forced several Pittsburgh businesses to close as utility companies urged consumers to conserve. Those edicts have largely been avoided locally this time around, though Dominion East Ohio, which services the Cleveland area, asked its customers Friday to voluntarily turn down their thermostats and water heaters to conserve energy.
The EIA estimates natural gas usage will fall in 2014 compared with 2013, in part because the administration projects a drop in heating degree days. Heating engineers calculate degree days by averaging high and low temperatures of a given day and comparing that to an average temperature, typically 65 degrees, that would not require a heated building.
In other words, they think it's going to get warmer, which might be the best news yet.
If the second half of winter is warmer, as some weather models project, that might prevent any sizeable change in home heating bills.
But if the cold persists longer than anticipated, that could be a problem for consumers.
The EIA reported last week that withdrawals from natural gas storage containers have broken weekly records twice this winter. If storage containers are further depleted, the market likely will react.
"If it's that low at the end of winter, then it gives people all kinds of concerns about inventories throughout the summer," Mr. Armstrong said.
Low storage levels at the end of winter could cause prices to continue to remain high -- at least, higher than what customers have grown accustomed to paying in recent years.
"It's all relative," he said. "We're still, on a relative basis, paying a lot less for gas and electric than we were 10 years ago. The conditions a decade on couldn't be more different than they are today in Western Pennsylvania."
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