Recent Natural Gas Price Increases

The Department of Energy (DOE) is predicting that national average home heating costs will rise for all consumers, regardless of their fuel source. According to the DOE, average natural gas prices will be 47 percent higher than they were last winter. Heating oil is expected to be up 31 percent and propane costs will average 40 percent higher than last winter.

These increases reflect only the rise of wholesale fuel prices, which are passed on to consumers, not the total cost. Consumers are being urged to take measures now to ease the sticker shock associated with colder temperatures – through home weatherization, signing up for the average billing plan, learning and applying conservation tips, seeking financial assistance through low-income assistance programs as applicable, and saving extra dollars now to meet the rising costs of the coming months.

Anatomy of a Natural Gas Rate
The natural gas rate local customers pay is made up of three components:

  1. The cost of the natural gas commodity itself,
  2. The cost to transport the gas from where it is produced (primarily from the Gulf of Mexico, Texas and Louisiana) to the Sylacauga Utilities Board, and
  3. The cost to transport the gas from the city gate to the customer’s home.

The cost to transport the gas to the home is a regulated (by Board of Directors of the Sylacauga Utilities Board), fixed cost based on consumption. The cost to transport the gas interstate to the Board is also a regulated (by the Federal Energy Regulatory Commission) fixed cost; however, the third component, the natural gas commodity price, fluctuates with the market as it reacts to weather and supply and demand issues. It is this component, which can swing wildly, that is going up and resulting in the anticipated higher winter heating bills.

It’s Simply Supply and Demand
In recent years, natural gas prices have trended upward due primarily to increased demand for natural gas to fuel the growing number of gas-fired electric generation plants across the nation. Due to environmental restrictions and quick construction turnaround, power generators have turned to new plants fueled by natural gas to meet the growing economy’s need for more and more electricity. Natural gas prices, which traditionally dropped in the summer months due to lower demand, now creep upward as demand for electricity rises in summer months. Utilities filling up summer storage are now paying higher summer natural gas costs for gas stores they will tap into for a portion of their winter heating season needs. These added costs will also be passed on to consumers. Compounding this situation is slow growth of natural gas production, and an active hurricane season impacting offshore natural gas production, further reducing supply, while demand steadily climbs in the cooler autumn months.

However, experts say natural gas supplies are abundant, yet remain untapped due to environmental concerns and economics. Additional resources are being sought, including natural gas imports in the form of liquefied natural gas (LNG) from around the globe, which are anticipated to grow in coming years. LNG imports can only help to a point, so access to federal lands and waters for drilling, is a real long-term solution. Exploration and production of natural gas is routinely done safely and without harm to the environment in even the harshest conditions around the world. National support for more domestic production of energy is necessary. Americans have seen what global reliance has done to the crude oil market in the U.S. and shouldn’t allow the same thing to happen to the natural gas market.