Forecasts estimate higher heating costs

Natural gas is the most popular fuel for residential heating in this country. It heats more homes than all other energy sources combined. Some 52 percent of U.S. households have natural gas heat; 31 percent utilize electricity; 9 percent heat with oil; 6 percent use propane; and 2 percent employ wood, kerosene or other fuels. (U.S. Energy Information Administration)

The nation’s 66 million natural gas users have seen prices fluctuate up and down because of a shrinking divide between demand and supply. The wholesale price of natural gas was pretty stable during the 1990s–about $2 per 1,000 cubic feet (mcf)–according to the government, because the supply of gas was plentiful. Since 2000, wholesale prices have risen to $4 or more per 1,000 cubic feet and remained near that mark.

Prices for natural gas are very sensitive to weather in terms of supply, such as the recent hurricanes in the Gulf of Mexico, which affected production, but much more so when it comes to demand. Weather generally is the most prominent factor regulating gas prices.

What does all this mean for heating costs this coming winter? Average residential natural gas prices are expected to be 11 percent higher than last winter, and household costs will be about 15 percent higher. Heating oil costs are forecast to average 29 percent higher than last year, and household expenses are expected to be 28 percent higher. Propane costs are anticipated to average 17 percent more than last winter, with 22 percent higher costs for propane-heated households.

The government said natural gas prices were somewhat lower in August because demand levels and peak power demand stayed well below normal. In the latter half of September, however, current and future prices climbed in response to production losses in the Gulf caused by Hurricane Ivan.

The average spot price for natural gas at the Henry Hub in Louisiana for September was $5.15 per 1,000 cubic feet (mcf). Those prices are expected to average $6.10 per mcf this year and $6.18 per mcf in 2005. Spot and wellhead prices do not include pipeline costs.

A spot market is one in which natural gas is bought and sold for immediate or very near-term delivery, commonly a period of 30 days or fewer. The wellhead price is the value of the gas as it comes from the ground, before any processing or pipeline costs are added.

The USEIA estimates that home heating cost for an average Midwestern home this year will be $1,010 for natural gas.

Utilities, of course, want to have an ample supply of natural gas available at prices their customers can afford. They take steps to stabilize prices and help consumers deal with their gas bills.

Last January, NICOR Gas reported its monthly gas supply charge was 69 cents per therm, up from 58 cents for December 2003. Here are some comparisons of per therm charges over the last three years: 2001–95 cents; 2002–27 cents; 2003–54 cents.

Last winter, Ted Lenart, assistant vice-president of supply operations for NICOR, said: “It’s important for consumers to be informed on this issue. Natural gas prices are higher nationally, and the pricing environment remains volatile. Weather has an enormous impact on prices because temperatures drive the quantity and rate at which natural gas is consumed. What we’ve seen thus far (last winter) is that usage levels have been lower than what is customary for the early part of winter due to warmer-than-normal weather.” (

Using its monthly gas charge of 69 cents for January 2004, NICOR issued the following estimates for total monthly heating cost on three different size homes: 1,000 to 1,500 sq. ft.–$195; 2,000 to 2,500 sq. ft.–$220; 3,000 to 3,500 sq. ft–$245. Those figures are based on the use of natural gas for heating, cooking, clothes drying and water heating. Other variables, such as the effectiveness or lack of it with building insulation, can affect costs, causing them to vary home-to-home and business-to-business.

More than 275 gas-fired electrical generation plants are planned to begin operating in 2006. That would boost gas consumption by 8.5 trillion cubic feet. Analyst John Myers said even if all those plants aren’t built and operated, there still will be a sharp jump in demand for natural gas because of the very limited use of coal as a competing fuel.

Myers said a typical cold winter could set off “a disaster scenario,” with a drawdown of nearly 2.4 trillion cubic feet. He said that would leave a record low inventory of 186 Bcf next spring at a time of record high demand.

One of the things NICOR and other utilities do to assure some stability in prices and supply is to buy and store gas underground for winter usage. The cost for that gas has been rising. It cost 50 percent more in 2003 than it did in 2002. Natural gas prices have jumped across the board since Sept. 15, when Hurricane Ivan seriously cut production in the Gulf of Mexico. According to US Minerals Management Service (MMS), seven fixed drilling platforms were destroyed, five offshore drilling units were adrift, four platforms had extensive damage, and the pipeline developed 13 leaks.

That resulted in a drop in production of 38.6 billion cubic feet of gas and more than 9 million barrels of oil. However, production declines in the Gulf of Mexico and New Mexico were offset by increases in Texas and the Rocky Mountain states, which added large gas reserves in 2003.

Working gas in storage as of Oct. 6 rose to 3,065 billion cubic feet, about 8 percent above the five-year average. Spot prices are expected to rise sharply once the heating season begins. About 15-20 percent of the gas burned in the winter comes from stored supplies. September stocks were 223 billion cubic feet (Bcf) higher than last year at this time and 188 Bcf above the five-year average of 2,754 Bcf. The total grew by 123bcf between the September report and now.

Domestic production of natural gas is projected to grow by 1.4 percent. Steady increases in liquefied natural gas imports, controlled export growth and carryover from healthy storage levels are expected to result in moderate improvement in gas supplies next year.

Federal government statistics show stocks of natural gas in the eastern U.S. for Sept. 17 were 1,704 Bcf, while one year ago the amount in storage was 1,610 Bcf. The total amount in storage for the lower 48 states was given as 2,942 Bcf, compared with 2,719 Bcf one year ago. (Department of Energy)

What can be done to ease the price burden on consumers? To a large extent, that depends on the size of demand. The National Petroleum Council in 2000 projected U.S. demand for natural gas could reach 30 trillion cubic feet a year by 2010, up from 2,000 levels of 22 trillion a year.

About a quarter of our natural gas requirements come from the Gulf of Mexico, and it is expected to furnish most of future production growth. But finding and delivering enough gas to meet the projected demand, even if it takes 10 years to hit those levels, is no easy task. Gary Lore, of the U.S. Minerals Management Service, said that under a “base case forecast” by his company, Gulf production of natural gas would grow from about 5 trillion cubic feet a year to a peak of 6.1 trillion cubic feet next year and then start to taper off.

Chevron executive Andy Hardiman said that to meet a demand of 30 trillion cubic feet by 2020, the average daily production in the Gulf would have to grow to 22Bcf from about 14 Bcf four years ago. (

So what about reducing consumer costs? There are not many alternatives. Short term, we can increase supply, use energy more efficiently and push to develop alternative fuels. U.S. supplies of natural gas are running out. and the only other option—liquid natural gas—is an expensive and time-consuming answer. Natural gas only can be shipped via a pipeline; but if it must come from a very distant location, it must be liquefied and shipped in special refrigerated vessels. Then it must be delivered to specially equipped ports, converted back to a gas, and distributed through pipelines.

NICOR encourages every user to get on a
budget plan to help manage costs. The company also urges seniors and disabled citizens who qualify to sign up for the Low Income Energy Assistance Program, known as LIHEAP. The special enrollment period runs through the end of this month. General enrollment opens to the public on Nov. 1. (

The program provides financial assistance through the state public aid department with monies from the U.S. Department of Health and Human Services. NICOR also operates a gas sharing program which provides one-time annual grants to qualifying households. Information on LIHEAP can be obtained from Rockford City Hall.

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