Thursday, August 27, 2009

Natural Gas Prices Low For A While

By MARK WILLIAMS (AP) – 2 hours ago
Natural gas prices are at seven-year lows and it looks like heating bills may be cheap for a while.
How did prices get so low, and how long are they likely to stay there? Are there ways we could be using natural gas — beyond staying warm and cooking food — to take advantage of this cheap source of energy?
Here are some questions and answers about what is happening with natural gas prices.
Q: Where are prices now?
A: Natural gas prices fell 2.8 cents Wednesday to $2.88 per 1,000 cubic feet. That is down 80 percent from last summer, when prices spiked to nearly $14 per 1,000 cubic feet.
Q: Why have prices fallen so much?
A: It is Economics 101. There is little demand, and new drilling technology has made easy pickings of huge reserves of natural gas that was once out of reach.
The Potential Gas Committee in Golden, Colo., reported in June that estimated U.S. reserves are 35 percent higher than just two years ago, thanks to new technology that has allowed producers to drill for gas in shale rock. Energy companies can now drill downward, and then sideways, for miles.
As a result, reserves are at their highest level since the group started tracking the information 44 years ago.
The natural gas-backed American Clean Skies Foundation said a year ago the U.S. has a 118-year supply of natural gas at 2007 production levels.
Meanwhile, the recession has crippled demand for gas. The federal government expects consumption to decline by 2.6 percent this year, driven by a huge drop in demand from the nation's factories. At the same time, summer weather for much of the country has been mild, reducing the power plant-taxing use of air conditioning, and there have been no hurricanes so far to disrupt key production areas in the U.S.
Storage levels for gas headed into the heating season are at record levels and gas has become so cheap that it has become competitive with coal for generating electricity from big power plants.
Q: With prices so low, I should get a nice break on my heating bill this winter, right?
A: Right, assuming you are in one of the 60 million homes heated by gas. The price of gas makes up about two-thirds or three-quarters of a typical gas bill. Gas prices already have started to moderate from the winter, but how much of a break you will get depends on when your distributor locks up prices.
Columbia Gas of Ohio, which adjusts prices monthly, says its prices for September will be about half of what they were in September 2008.
Q: What if I heat my home with electricity?
A: You may still be in luck. Utilities generate about a fifth of the nation's electricity with gas, so those prices figure to come down. How much they'll fall depends on a whole host of factors, including whether your utility is fully regulated or deregulated, how much your utility relies on gas for power generation and how far out they locked into power contracts. Also, some utilities have been raising rates to cover costs for new power plants and pollution controls.
Q: How long will prices remain low?
A: That really depends on the wind, both economic and meteorological. Winter is on the way and the recession won't last forever. Still, most weather forecasters expect a relatively mild winter, and we are still struggling to recover from the economic downturn. Odds are, a substantial rebound in prices is not going to happen soon.
But it's not out of the question.
In the summer of 2002, as the country recovered from the last recession, natural gas cost $2.66 per 1,000 cubic feet. Then it got really cold. By February, prices had doubled, and then they quickly spiked to nearly $11, in part because of one-time events — like a huge fire at an oil and gas storage facility in New York caused by an explosion of a barge carrying propane. It is difficult for energy companies to ramp up operations, but once they do, prices tend to fall — natural gas was back to $5 by August.
The difference this time is the size of the recession (a lot bigger) and the size of our reserves (also a lot bigger).
"The fundamentals weigh against the potential for $10 gas," said oil and gas trader and analyst Stephen Schork.
Q: Given that there is an abundance of natural gas, why aren't we using it to power cars and everything else? Can't we become more energy independent?
A: Natural gas is already used extensively. It heats our homes, makes our water hot and dries our clothes. It is used by industries that make, among other things, steel, plastics and chemicals, and utilities rely on gas to generate electricity.
Some people would like to see natural gas used more extensively as a transportation fuel, beyond its limited uses by some public bus systems and corporate vehicle fleets. As of yet, the infrastructure does not exist for more widespread use.
Airports and cities have built facilities where natural gas-powered buses can return for a recharge, and there are companies trying to build more natural gas stations for everyday use. If new climate regulations are enacted by the U.S., there may be an even stronger push for more such stations because natural gas produces nowhere near the emissions of gasoline.
Copyright © 2009 The Associated Press. All rights reserved.

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