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Gas Users Spin Wheel of Chance: Watch Rates, Consider Locking in, Experts Urge

Posted on: Sunday, 19 March 2006, 15:00 CST

By Jon Chavez, The Blade, Toledo, Ohio

Mar. 19--LIKE A spent rocket, once-soaring natural gas prices that angered many consumers in December are dropping rapidly, pulled downward by growing fuel stockpiles, warm weather, and relative stability among world oil producers. But instead of basking in relief, homeowners and renters would be smart to watch gas rates closely through June, experts said. Favorable factors have opened a three-month window of opportunity to lock in lower natural-gas rates that could trim heating bills next winter. "If the price is something you're comfortable with, I'm not suggesting anybody wait," said Jim Halloran, an energy analyst with National City Private Client Group in Cleveland. If a customer likes the prices being offered by alternative suppliers, then he or she should lock in to a contract for a year or two, he said. At the least, experts advise, consumers should watch rates closely next month because April is when utilities stop taking gas from storage for winter heating demands and begin putting some back in. Greg Bollins, president of alternative marketer Vectren Source, of Evansville, Ind., said suppliers often offer good deals in the spring and summer, but few people pay attention. "Their attitude is they just don't want to deal with it right now," he said. "They'll worry about it later." But many customers are motivated now because they "don't want to take the risk of another bad winter," said Tom Ulry, vice president at Commerce Energy, of Costa Mesa, Calif. He anticipates no problems in the next 30 to 60 days that would make natural gas prices bounce around like oil prices. In December, Columbia Gas of Ohio, the dominant gas utility in northwest Ohio, charged $1.29 per 100 cubic feet. In January, the rate $1.36. This month it is $1.14, and next month it is proposed to be $1.08. In mid-December, alternative suppliers offered fixed prices of $1.40 to $1.65. Last week, they offered 99 cents to $1.56. "Logic dictates that if all of these stars align, there could be further price relief, but it's hard to say what will happen," said Eric Stephens, regulatory affairs director for DirectEnergy, one of the suppliers. The Public Utilities Commission of Ohio makes comparison price charts available for the alternatives to Columbia Gas. Those charts are on the Web site www.puco.ohio.gov (click on the Apples to Apples comparison charts on the left) and can be printed upon request at the business desk of the main Toledo-Lucas County Public Library, and at the front desk at any branch. When considering natural gas plans, customers should determine their final cost, especially if an existing supplier has a contract cancellation fee. Such fees average $25, but can run up to $150. One big factor driving prices down is a mild winter, with lessened heating and thus lower use of natural gas, depleting supplies less than is typical. U.S. natural-gas storage sites had 1.4 trillion cubic feet in 2002, a record, but this year that figure could jump to 1.7 trillion, said Mike Welch, marketing manager at WPS Energy Services Inc., of Green Bay, Wis. Storing gas in the ground typically begins in April, after the winter demand eases, but often some gas is diverted to standby power plants to fuel electricity generation if the summer is hot.

A hot summer could divert enough gas to keep gas supplies tight and boost prices. But the U.S. Energy Information Administration predicts summer weather will be normal and demand for natural gas used to make electricity will fall this year. Thus, the agency said in a report, there should be "a noticeable easing in spot natural gas prices," leading to decline in customer prices. The Federal Energy Regulatory Commission staff agreed last week. "I think if you look at the marketplace, my general opinion is if we have the same kind of summer like last year, that is, fairly warm, we'll see gas prices bottom out in April or May," said Mike Anderson, director of supply planning for Columbia Gas. "If it's cooler and gas demand is not as high, the bottom on prices could come in September or October," he said. The latter period, however, could be affected if hurricanes damage Gulf Coast drilling rigs. Experts are skeptical natural gas prices will keep falling after June. "Historically, we don't have significant destructions in the Gulf, but the last couple of seasons we've had them," said Tancred Lidderdale, the analyst who prepared the Energy Information Administration's report. Futures prices for later this year are higher than current spot prices, he said. As a result, homeowners shopping for a good price now may find they have to pay more to lock in to a longer-term contract than current variable rates, said Mr. Stephens, of DirectEnergy. "It really depends on what the customers want in terms of certainty," he said. "They can lock a long-term rate down now, but it may carry a higher premium." Said Mr. Bollins of Vectren Source: "There is a concern that even though we have high storage levels now, that the production from existing natural gas wells is declining. Even though there's a lot of drilling going on … each new well is producing less than the well it is replacing." Mr. Halloran, of National City, thinks the worrying is overstated. "I'm a long-term bull on energy," he said. "But in the next 18 months I think prices are going to come down, possibly lower than people will expect. "This is the first time in six or seven years I've felt that way." Speculators on commodities such as natural gas futures, he said, are looking for negative reasons to push prices upward. "The oil prices is staying up because of scares in Iran and Nigeria that might happen. … But so far, it's all so much hot air," he said.

Oil and natural-gas prices often track each other. Natural-gas inventories are up, but more important, oil inventories are at their highest in about six years, Mr. Halloran said. The latter could lead to sharply reduced natural gas prices, he added. "Depending on the price, I would probably try to lock in for a couple of years, but you need to be aware of cancellation costs," he advised. Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.

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Copyright (c) 2006, The Blade, Toledo, Ohio

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Source: The Blade

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