When the Farmer’s Almanac came out in late August predicting a “piercing cold” winter, the natural gas industry seemed skeptical.
Citing historically high stability in supply from the surge in domestic shale production and making weather predictions that didn’t mirror those of the time-tested periodical, the industry was confident that consumers had nothing to worry about in winter 2013-14.
Complete with a “Good News For Consumers” headline, the Natural Gas Supply Association painted this rosy picture with its annual fall forecast and its implications for consumers:
“Anticipated repeat of last winter’s normal weather pattern portends level demand for natural gas heating.”
Now, amid one of the most bitterly cold winters in recent history, the news about natural gas isn’t so hot, either.
The price of natural gas hit a nearly 4-year high on the futures market last Friday, closing at $5.18 per cubic foot. That’s an increase of about 30 percent in just the last 2 weeks, and a 50 percent spike when compared to the same period last year.
So what can consumers expect the rest of the winter? Extreme swings in the commodity price and higher heating bills in the short term, said Jim Ritterbusch of Galena, president of energy advisory firm Ritterbusch & Associates.
“We’re going to see some high-pitched volatility into spring,” Ritterbusch said. “There is a huge erosion of supply, and heavy demand. The stage is set for a very volatile price environment.”
In addition to the increased demand during these prolonged cold stretches, the supply side of the equation is also taking a beating from the weather. Many domestic producers have been forced to shut down operations for extended periods of time because of the brutal cold.
“Disruption from the cold has definitely had a supply-side effect,” Ritterbusch said. “The cold has extended into the shale-producing areas, all the way south to Texas.”
The nation’s energy supply is measured in trillion cubic feet. Comparing the year-over-year numbers paints a pretty clear picture, Ritterbusch said.
Last year’s supply at the end of January was 2.7 tcf, up slightly from the average for that time period of 2.5 tcf. By the end of this month, the supply is expected to come in at less than 1.9 tcf, Ritterbusch said.
“There is a stark difference between this year and last, but last year it was an exceptionally warm winter,” Ritterbusch said.
A gas meter measures usage in cubic feet, but consumption is converted to therms on gas bills. According to Nicor Gas, an average home furnace uses about one therm per hour of heat production.
Nicor raised its price for natural gas from 40 cents per therm in December to 46 cents per therm in January, a 15 percent increase. The price changes must be filed each month with the Illinois Commerce Commission.
Consumers have been blessed with milder winters the past couple years, so a little perspective could help ease the pain. In January 2009, prices were 65 cents per therm through Nicor, and upward of 93 cents per therm with other suppliers.
Natural gas prices have seen a long stretch of stabilization. Weather conditions similar to this winter likely would have caused much higher prices in years past.
“It’s 30 percent colder over the same period last year,” Nicor spokeswoman Annette Martinez said. “January 7 was the second-highest delivery day in Nicor’s history.”
As a regulated utility, the price customers pay must reflect the amount the company paid for the commodity, with no markup.
Historically, the highest natural gas prices Nicor has seen didn’t even come during the winter season, Martinez said.
“In July 2008, there was disruption to production from a very active hurricane season, and we saw $1.45 per therm,” she said.
The good news for consumers is that consumption should be back to normal in about a month.
“I don’t see any price-gouging going on now,” Ritterbusch said. “Prices have just been forced higher by high demand and lower supply – that’s Economics 101.”
Help with higher bills
– Low Income Home Energy Assistance Program (LIHEAP)
A federal- and state-funded grant program managed by Illinois. Financial eligibility requirement is a household income of 150 percent of the federal poverty level. For more information, go to www.liheapillinois.com, or call the toll-free LIHEAP information line at 1-877-411-9276.
– Nicor Gas Sharing Program
Funded by donations from customers that are matched up to $175,000 by the company. Financial eligibility requirement is a household income of 200 percent of the federal poverty level. To apply for assistance, visit a local local Salvation Army office.
– Nicor Gas Energy-Efficiency Programs
Offers homes and businesses rebates on natural gas equipment and other energy-efficiency investments. For more information, visit nicorgasrebates.com.
– Nicor Gas Budget Plan
Helps minimize effect of steep seasonal increases by putting customers on a plan to pay a consistent amount over a 12-month period. For more information, call 1-888-642-6748.