Thursday, July 06, 2000
Natural gas in demand, too
Cooling demands depleting reserves of heating fuel
By James Pilcher
The Cincinnati Enquirer
With gasoline prices on the decline, homeowners in Greater Cincinnati who rely on natural gas to keep warm may be faced with an additional $22 a month in heating costs — and a major reason could be greater demand to stay cooler.
Some experts predict a jump in heating costs as high as 30 percent this winter, especially with demand for natural gas bucking normal trends and increasing this summer because of a rise in gas-generated electricity.
About half of Tristate homes and businesses are heated with natural gas and about 90 percent of new homes in Greater Cincinnati use natural gas.
“No question about it, in creased demand in the summer has really changed the market,” says Doug Maag, deputy director of the utilities department of the Public Utilities Commission of Ohio. “It is the industry's total consensus that the additional demand has put upward pressure on prices and helped cause the price increase.”
The amount of electricity produced at plants burning natural gas has almost doubled since 1989. Through March, the amount of electricity produced from natural gas is up more than 26 percent this year over last.
That has stressed a market already short on supply, and the end result is that natural gas prices have doubled over the last year.
Wednesday's spot price for a million BTUs of natural gas, or about 1,000 cubic feet, was $4.68, up from
$2.43 on July 8, 1999.
Cinergy, the area's major natural gas supplier, is anticipating higher prices this coming heating season, although a company spokesman would not speculate on how much. Last year, an average Cinergy bill including gas and delivery charges was $74.44 a month, and a 30 percent increase would mean another $22.33 a month. A $130 bill isn't uncommon during the winter; 30 percent more would add $39.
“It's all really dependent on the weather and how much demand is out there,” says Cinergy spokesman Steve Brash, whose company recently won PUCO approval to raise prices because of a steady increase in wholesale natural gas prices.
“Just because the commodity may have doubled its price, that doesn't mean the rate we charge is double,” says Mr. Brash. “In fact, our current rate is slightly less than what we were charging last summer.”
Normally, the price of natural gas cycles from higher in the winter to lower in the summer, when suppliers buy up reserves in preparation for the cold season.
This summer, however, supply has been low, and prices have stayed high — meaning many companies have yet to stockpile, creating even more pressure on natural gas prices.
Current gas reserves nationally are about 10 percent lower than they were last year, said Chris McGill of the American Gas Association, a Washington-based trade group.
Another factor affecting prices is increased demand created by homes switching from oil to natural gas, but experts say the greatest impact has been from the electricity market.
With environmental regulators cracking down on coal-burning plants, most new power facilities use natural gas. And many newer air-conditioning units use natural gas instead of electricity.
“Even though we had a warmer than normal winter last year, demand was still up and reserves were still depleted,” says Dave Costello, a U.S. Department of Energy economist. “And the economy is still growing, creating even more demand.”
Cinergy reports that more than 95 percent of all its electricity comes from coal-burning plants. In 1998, the national percentage of electricity from coal was 56 percent.
But newer plants — especially unregulated “merchant plants” that generate power using natural gas and sell electricity to companies like Cinergy during peak demand — are more of a factor.
A Cinergy subsidiary, in fact, co-owns a merchant plant with Duke Energy in Butler County.
Since 1989, electricity produced by natural gas has increased from 363,942 million kilowatt-hours to 544,792 million kilowatt-hours last year.
The Energy Department's Mr. Costello says relief may be in sight, with several new drilling projects started in Canada and the United States over the last two years. But whether the new capacity will meet demand in time for this winter's heating season remains to be seen.
“It wouldn't be that big a deal to my budget, but it would still be out of line,” says Stu Shirley, a real estate agent who paid $130 a month during last winter to heat his new home in Colerain Township. “I would be willing to pay a cost-of-living increase, but a 30 percent increase? I hope that doesn't happen.”
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