Vectren Defends Assessment Natural Gas Producers Say Cost Should Be Steady

By From staff and wire reports

Despite predictions by natural gas producers of plentiful supplies this winter and projections that prices should be similar to last year’s, Vectren Corp. is sticking by its assessment that customers’ winter gas bills will be higher in the coming months.

The company has warned of price increases this winter ranging from 15 percent to 25 percent over last year.

The Natural Gas Supply Association said Thursday in its winter outlook report that overall prices should stay about the same as last year. Hurricane Gustav caused supply disruptions, but a plentiful supply of natural gas is expected to be available for heating this winter.

Nearly half of the natural gas production in the Gulf of Mexico remains shut down because of two recent hurricanes, but the industry group said gas inventories at the start of the winter heating season – traditionally the beginning of November – are expected to be well above the five-year average. And this winter, producers are expected to pump about 8 percent more gas than last winter, with more wells operating, the association reported.

The group says the slowing economy could temper demand for gas, particularly for industrial uses, although demand from power companies is forecast to increase slightly.

The industry group, which represents gas producers, does not attempt to project

retail prices. But Patrick Kuntz, a vice president for natural gas and crude oil sales at Marathon Oil Co. and the association’s current chairman, said various factors suggest wholesale gas prices will be similar to last winter.

“We expect flat price pressure,” Kuntz said at a news conference.

But Vectren Communications Director Chase Kelley said while the natural gas supply has weathered hurricanes Gustav and Ike, the utility already has purchased about 80 percent of its natural gas supply for the winter. That means if gas were purchased this summer at the nearly $13 per thousand cubic feet cost instead of the current wholesale price of $7.65, that increase in cost still will be passed to customers.

However, Kelley said the good news is if prices continue to stay low when Vectren purchases the remaining 20 percent of its winter supply, that may keep bills a little lower.

Vectren tries to make purchases when it can during the year while looking for the best possible deals for consumers, Kelley said. “We try not to outguess the market. We can’t control or predict it,” she said. “We have to procure it when it is available. Unfortunately, the price of natural gas follows oil. They are not related, but they are sympathetic.”

Marathon’s Kuntz said despite the supply disruptions from the Gulf hurricanes, “we expect a healthy level of storage” of natural gas going into this winter as producers drill more wells.

Production this winter is expected to be 57.5 billion cubic feet a day, or 7.9 percent more than last winter, the association said, with an expected 3,450 billion cubic feet of gas in storage by November. “It’s the highest level (of production) in 35 years,” said Kuntz.

The trade group cited an analysis showing demand this winter may be 2.4 percent greater than last winter. But Kuntz said that increase may be wiped out by a further economic downturn. Kuntz said the natural gas industry is not expected to be affected in the short term by the turmoil in the credit markets.

Wholesale natural gas prices at the Henry Hub terminal at Erath, La., have fallen to about $7.65 per thousand cubic feet, comparable to prices in the early part of last winter, from an average monthly high in June of $12.69, according to data cited by the gas association.

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