Energy costs to soar this winter

Get ready. Here comes a sharp pain in the wallet for the winter heating season. The U.S. Energy Information Administration (EIA) has warned U.S. consumers that residential natural gas bills in the Midwest could leap 70 percent this winter.

Hurricane Katrina is part of the reason, but even before that, prices were climbing in response to a very hot summer that used more natural gas to make electricity for air conditioning. The hurricane, the EIA said, has “set the stage for a potentially expensive winter heating season.”

Mark Goss, chairman of the Kentucky Public Service Commission, told the Cincinnati Enquirer: “Natural gas is likely to cost more than it did during the winter of 2000-01, when prices set a record.”

The reason is tight supplies—worsened by the impact of Hurricane Katrina, which smashed the Gulf Coast oil production, the nation’s primary gas source. Even ahead of the heating season, the spot price for natural gas is up, averaging more than $9 per 1,000 cubic feet.

Natural gas is the most commonly used heating fuel in this country. It is stored in about 400 underground caverns, aquifers and salt domes between April and October for use in supplementing pipeline supplies during the coldest winter months.

Katrina caused significant damage to offshore oil rigs, refineries, pipelines and ports on the Gulf Coast. Widespread electricity outages and flooding aggravated the already battered infrastructure, and this was compounded by the evacuation of thousands of employees.

The storm initially cut oil supplies by 1.4 million barrels per day and trimmed natural gas supplies by an estimated 8.8 billion cubic feet per day. The EIA says that is improving daily in the aftermath of the disaster, with shut-in oil and natural gas production down to 58 and 42 percent, respectively, of pre-Katrina production levels.

The agency said much uncertainty remains as to the extent of the hurricane’s damage, and that makes it very difficult to forecast what lies ahead in the next several months in terms of energy supply.

Average retail prices for gasoline rose sharply because of Katrina, the EIA said, and are expected to continue near $3 a gallon through December. The average pump price is up 68 cents a gallon from the third quarter of last year. This month, the average pump price rose 46 cents per gallon from one week ago. Prices are expected to begin dropping by year’s end as supplies increase.

Retail diesel fuel prices are expected to reach the highest average monthly level ever seen, more than $2.71 per gallon. That price [adjusted for inflation], is the highest in more than 50 years.

Heating oil prices in the 2004-05 heating season averaged $1.83 per gallon, a 34 percent increase from the previous winter. Hefty hikes are expected this winter. Average heating oil prices here rose by about 48 cents per gallon in the first half of this year. EIA is projecting average prices for heating oil will be about 33 percent higher. Weather, of course, will be a big factor in determining price because it affects demand.

The Henry Hub, owned by Sabine Pipe Line LLC, is a central point for U.S. natural gas futures trading. It is connected to pipelines serving the Midwest, Northeast, Southeast and Gulf Coast. It also has ties to the New York Mercantile Exchange. The hub can move 1.8 billion cubic feet of gas per day.

The natural gas spot price at the Henry Hub is expected to average $8.82 per 1,000 cubic feet this year and $8.42 per 1,000 cubic feet in 2006. Depending on the speed of the recovery from the hurricane, the average price of natural gas predicted ranges from $11 to $13 per 1,000 cubic feet.

In August, the Henry Hub spot price for natural gas averaged more than $9 per 1,000 cubic feet because of hot weather in the East and Southwest, which increased consumption for generating electricity.

For this winter, the government says upward pressure on natural gas prices may be the strongest in areas where demand is greatest, such as the central U.S.

Working gas in storage was estimated at 2.6 billion cubic feet as of Aug. 26. That’s 1.9 percent lower than a year ago, but still 5.2 percent above the five-year average.

EIA expects demand to drop somewhat this year, but rise by 2.4 percent next year. The hurricane may reduce the amount of natural gas that can be stored during the injection season from what was anticipated earlier. As it stands, end-of-August storage was about 120 billion cubic feet less than last month’s projection.

Domestic production of natural gas is expected to decline by 1.5 percent this year, chiefly because of damage to infrastructure by hurricanes Ivan and Katrina.

The current winter outlook for the period from October through March 2006 is for price increases as follows: oil +20 percent, natural gas +24 percent, coal +13 percent. Electricity costs are expected to be up about 5 percent.

Statistics from FEMA and the U.S. Dept. of Energy.

From the Sept. 14-20, 2005, issue

Enjoy The Rock River Times? Help spread the word!