Industry News

(The following article is an excerpt from the Northeast Gas Association Update of January 2006.)

Key Points The natural gas distribution companies serving the Northeast U.S. are prepared for winter, and have secured adequate natural gas supplies to meet their firm customers’ needs. The regional natural gas delivery system, which relies on multiple supply sources, is operating well. The natural gas storage situation, both nationally and regionally, is in a better than-average position at this time of the year. The prices for all fuels, including natural gas, are much higher this year than last. Natural gas utilities have programs in place to advise their customers on ways to help manage their projected higher bills. The U.S. natural gas market has been challenged this year by a tight supply and demand situation, a high commodity price, and two severe hurricanes that impacted many energy production facilities in the Gulf Coast. This winter, the U.S. natural gas supply market is projected to remain in balance, albeit tighter-than-normal, with expected reduced supplies from the Gulf area offset by steady (and potentially slightly increased) imports from Canada, industrial sector “demand destruction,” and general market conservation in response to higher prices. Energy efficiency is a valuable and important part of any energy plan, especially at this time of high fuel prices. The region’s natural gas utilities and government agencies have useful tips on ways to use energy more efficiently in the home and workplace throughout the winter and year.

Regional Delivery/Storage System: Operating Well

The U.S. EIA released its weekly national storage report on January 12, 2006 for the week ending January 6, 2006. Storage levels total 2,621 Bcf nationally, which is 11.8% above the 5-year average level for this time of year. Recent mild weather nationally and regionally is contributing to the stronger storage numbers and the recent decline in the commodity price.

As of January 11, according to the U.S. Minerals Management Service, the level of shut-in natural gas in the federal offshore Gulf of Mexico region was down to 1.8 Bcf per day (down from a high of over 8 Bcf/day earlier this fall following the two severe Gulf Coast hurricanes). U.S. DOE estimates another 0.6 Bcf/d of natural gas production is offline in the State of Louisiana jurisdiction. On December 6, the U.S. Energy Information Administration (EIA) noted that "the interconnectivity of the natural gas gathering system has helped speed the recovery of shut-in production as suppliers reroute gas flow around damaged pipelines to active processing plants. Consequently, in this Outlook we have accelerated the recovery of the natural gas supply system from our November Outlook prediction."

The impact of Higher Commodity Costs on Customer Bills

Higher energy prices nationwide will likely result in higher heating bills for consumers this winter. High demand, a tight national supply situation, and the impact of the Gulf Coast hurricanes have challenged the entire U.S. energy marketplace. This has also caused greater pressure on the commodity price of natural gas and will lead to higher bills for customers.

The price paid for natural gas by consumers depends on the market price of the gas commodity itself, and the cost of transporting that gas from production areas to customers. The natural gas commodity price has been higher throughout this year owing to several factors, such as higher demand resulting from a stronger national economy, a hot summer that led to greater natural gas use in power plants, and a tight supply and demand balance for all fuels. The impact of the two major Gulf Coast hurricanes has further stressed energy prices, including natural gas.

Natural gas utilities work throughout the year to purchase a reliable, diverse and cost-effective supply of natural gas in advance of the winter heating season. Market conditions have been especially challenging this year. As a result, customers should be planning for higher monthly gas bills, even with normal temperatures this winter. The average monthly bill this winter could be substantially higher compared to last, and if the winter is colder than normal, the impact to bills could be higher (and conversely, if the weather is milder, the lower average consumption would help to ease the bill impact).

Many natural gas utilities in the Northeast have filed for rate adjustments with their state public utility or public service commissions that regulate rates for homeowners and many businesses. In some cases, these adjustments to gas costs are filed with state regulators monthly. It is important to note that gas utilities do not make any money on the adjustments in the cost of gas; it is a pass-through cost.

The U.S. Energy Information Administration (EIA) in its January 2006 winter outlook estimates that the average U.S. household will spend approximately 35% more this winter compared to last for natural gas home heating; its projection for Northeastern households is lower.

State Regulatory Oversight and Coordination Contributes to Customer Protection

State public service / public utility commissions have oversight over the distribution costs of natural gas utilities. Utilities submit cost of gas adjustments to the commissions during the year as appropriate, to reflect different seasonal costs of the gas commodity. If the cost of gas itself rises or falls over a given period, that variation is reflected in the cost of gas adjustment provision. State oversight provides an additional measure of consumer protection.

Read More:

For more information
on the
Natural Gas outlook
for the 2005-2006 winter
heating season, visit
www.northeastgas.org