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Natural Gas Prices Drop With Warm December But Prices Could Rise to Record Levels If Temperatures Plummet Later This Winter.Natural Gas Prices

Posted on: Wednesday, 4 January 2006, 18:00 CST

By Nancy Gaarder

Natural gas prices, which remain unusually high, have dropped to their lowest level in five months for MUD customers.

Local utilities Tuesday released the prices they will charge for natural gas in January.

Metropolitan Utilities District, a public utility that serves customers in the Omaha area, will be charging about $1.04 a therm, one of the lowest prices in the state. Aquila Inc.'s Omaha-area rate will be about $1.11. Statewide, prices will range from about those levels up to $1.22 a therm.

A therm is a unit of natural gas similar to what a gallon is for gasoline. In a normal January, the average Omaha-area household will use about 190 therms.

In much of western Nebraska, residential natural gas prices remain unchanged because consumers buy natural gas at a fixed price from the utility Kinder Morgan Inc.

In Iowa, Aquila's prices have dropped slightly. Customers will pay about $1.20 a therm, down about 4 cents from December.

Also Tuesday, Aquila announced a proposal to offer a fixed-price plan to all its customers. The plan must be approved by the Nebraska Public Service Commission before it could go into effect.

Fixed-price plans set the price of natural gas at a specified level. Customers can choose to pay that price or can opt for continuing with the market price.

Using gasoline as an analogy, under the fixed-price plan, customers would agree to the preset amount, say, hypothetically, $2.15 a gallon for gas. They would pay that price through the heating season, whether the price on the market dropped to $1.99 or spiked to $2.35.

For customers of MUD, January's prices will be the lowest since August. For Aquila Inc. customers, prices bottomed out in December and now are up slightly.

MUD and Aquila follow slightly different purchasing plans, which is why their prices don't track each other.

Aquila buys more gas through hedged contracts, which buffer against high prices but don't benefit as much from dropping prices. Also, Aquila is a private company, so it must charge enough to provide a rate of return to shareholders, plus pay higher taxes.

Overall, MUD's prices are down 20 percent from their high point; Aquila's are down 15 percent.

Still, the price of natural gas remains about 40 percent more than a year ago.

At current prices and if temperatures are normal for January, the average Omaha metroarea customer can anticipate paying about $210 for this month's heating costs.

Tracey Christensen, spokeswoman for MUD, said prices are down largely because the nation has seen warmer than normal weather this heating season.

Still, natural gas prices are volatile and could return to record levels if another arctic snap hits the United States.

"You have to remember, winter has just started," said Neil Gamson of the federal Energy Information Administration. "January and February are the coldest months of the year. It's possible we could see some winter pressure again."

Gamson said natural gas production in the Gulf of Mexico has recovered substantially from the hurricanes that struck last year. However, he said, it's the warm weather, not restored production, that has driven prices down.

Natural gas prices

Residential rates for January Price per therm*

Aquila Metro: $1.11467 Aquila Lincoln: $1.037 Aquila East Neb.: $1.21997 Aquila Iowa: $1.20165 MUD: $1.0357 Kinder-Morgan**: $1.19

* A therm equals roughly 100 cubic feet of natural gas. The average Omaha residence is expected to use about 190 therms in Jan.

** Season-long average fixed price direct from Kinder-Morgan. One of several pricing options for western Nebraska customers.

Source: Omaha World - Herald

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