Domestic Home Natural Gas Prices Down

Glut of natural gas could spell lower bills this winter
By Alfred Lee, Staff Writer
Posted: 04/10/2009 05:50:56 PM PDT

The 60 million American homes that rely on natural gas for heat can expect substantially lower bills next winter thanks to a glut in supply and the weak economy.

Just as distributors start to lock in contracts for the coming winter, natural gas prices have fallen almost 75 percent. Not all of that will show up as savings on the heating bill, but it should still mean noticeable savings.

Southern California Gas Co. customers have already been seeing lower bills as natural gas prices go down, Customers will continue to benefit if prices fall further, spokeswoman Denise King said Friday.

"It's great news, actually, for our customers," King said. "We've seen a steady decrease in natural gas prices since last summer. That downward turn in the prices is passed directly on to our customers."

About half the average customer's Southern California Gas Co. bill comes from a commodity rate, while the other half is from transportation costs, King said. The company adjusts its commodity rates every month to reflect the actual costs it pays for natural gas.

The company's commodity rate is down to 31 cents per therm - a decrease from 36 cents per therm in March and a high of $1.23 per therm in July.

"This past winter, our customer bills were about 20 percent lower than the year before," King said.

Utilities also generate about a fifth of the nation's electricity with gas, and many of their customers should notice price breaks as well.

Electric utilities burn natural gas at power turbines, so homes that use electric heat could see big price breaks, too. And barring a scorching summer or a brutal hurricane season, analysts say prices could fall even further.

The reason: New technology this decade has unlocked massive reserves of natural gas in North America, and the sudden jump in supply has collided with a recession, the worst since World War II, that has sapped demand.

The result has been a collapse even more dramatic than the drop in oil prices.

Natural gas futures ended this week at $3.61 per 1,000 cubic feet, down from a July peak of $13.69. That's a decline of 74 percent, compared with a decline of 64 percent in oil prices over the same period.

Households have yet to see those huge drops reflected in their heating bills because the companies that buy and distribute natural gas in bulk are still passing on the premium prices they paid last summer.

But lower rates are almost certainly coming. Distributors are already signing contracts for next winter that lock in today's low rates.

- The Associated Press contributed to this story