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Remnant of US winter: Big gas bills

By Steven Mufson

The Washington Post

WASHINGTON — Coming soon to mailboxes across the Midwest and the Eastern Seaboard: Big gas bills.

Utilities are warning homeowners that they are about to get hit because of a double whammy — higher natural gas prices and consumption, both of which have been driven to five-year peaks by the arctic cold that has gripped much of the country in recent weeks.

Con Edison in New York estimated that the typical home-heating customer would see a gas bill this month of $388, which would be nearly 17 percent above last February.

Older homes are much less energy-effi - cient and could run up even steeper bills.

Gas prices have soared during the past year, despite talk of fracking and a shale gas revolution that was supposed to provide enough supply to ensure stable prices, lure petrochemical jobs back from overseas, replace coal power plants and feed large, new export terminals.

The debate over whether the surge in prices is a blip or here to stay is a critical question, because expectations of low prices have seeped into key energy policy and corporate decisions. Does it make sense to build new gas-fired power plants? Or export gas? Or channel it into feedstock for petrochemical plants? Or to fuel truck fleets that now run on diesel?

Yet forecasting gas prices is a tricky business. Over the past year, prices jumped by two-thirds, closing last Friday at more than $6 a thousand cubic feet for March delivery. Then on Monday, a national weather forecast predicting mild temperatures in early March sent prices tumbling 11 percent.

Big businesses and consumer advocates have been arguing for some time that gas prices would climb if the Obama administration continues to give out permits for companies to start exporting, and the surge in prices is adding fuel to that argument.

“Americans are getting hit in the wallets by huge price spikes and supply shortages, but it will only get worse if we send more natural gas overseas to our global competitors,” said a statement from America’s Energy Advantage, an association of manufacturers such as Alcoa, Dow Chemical and Nucor. “It’s bad enough now, but this is an eerie foreshadowing of the crisis to come unless there is a change in course.”

Even analysts who are sanguine about the abundance of newly accessible shale gas are raising their price forecasts.

Citigroup’s commodities research group on Friday boosted its outlook for 2014 prices by 35 percent to a year-long average of $5 per thousand cubic feet. It cited the cold weather and the drought out West, which sapped hydropower capacity and boosted demand for gas-fired power in California and the Northwest.

High prices have persisted despite some electric utilities switching back from gas to coal.

Most analysts and gas production companies — as well as Citigroup’s analysts — say that the winter surge in prices and consumption could inflict short-term pain on homeowners, but that it is not cause for long-term alarm.

“January was the 10th coldest on record, not just a spot of cold,” said Erica Bowman, chief economist of America’s Natural Gas Alliance (ANGA), a group of gas producers. “On Jan. 7, we saw the highest withdrawal from storage — 137 billion cubic feet — ever. And we still see prices $6 or less. I would say that’s a pretty good sign of how robust the system is.”

Over the past decade, natural gas prices have ranged from less than $2 per thousand cubic feet in April 2012 to more than $15 in late 2005 after hurricanes ravaged pipeline infrastructure on the Gulf Coast.

Many utilities were smart, or lucky enough, to lock in prices. Delmarva Power cut its gas supply costs by 14 percent in August 2013 for the year ahead. Customers might still see higher bills, though, because the extreme cold led to higher consumption. Washington Gas said that gas only makes up about 52 percent of the bill; the rest is delivery and other charges.

As recently as October 2013, the federal government’s well-respected Energy Information Administration forecast that there was only an 11 percent chance that natural gas prices would top $4.50 per thousand cubic feet in January; the monthly average turned out to be $4.71, and this month it has been even higher.

Expectations are tied closely to views about how much natural gas can be extracted from shale rock with new drilling techniques — and at what price. With prices low until recently, firms have pared back drilling for shale gas. There were 342 rigs drilling for natural gas in the United States during the week ending Feb. 21, down 20 percent from the year before, according to the weekly Baker Hughes drilling rig count.