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Published: Saturday, 8/14/2004

Brace for surge in natural gas prices

BY JON CHAVEZ
BLADE BUSINESS WRITER

If weather forecasters are correct, Midwesterners could see their natural gas heating bills go up about 20 percent this winter to an average of $175 a month from October to March.

"It's better than a 50-50 chance that prices will go up," said Dave Costello, an economist with the U.S. Department of Energy.

This week the federal agency released its short-term outlook for winter fuel costs and predicted that consumption, rates, and total costs for natural gas, heating oil, and propane gas will rise this winter.

"Weather patterns will drive the eventual outcome, but higher overall heating expenditures are likely this winter unless above-normal temperatures prevail," the government agency said in its report.

According to the report, during the 2003-2004 winter season - the period from October through March - consumers spent $871 to heat their homes with natural gas in the Midwest. This year, that is forecast to rise to $1,049 or an average of $175 a month.

The chief reason: Colder temperatures than last year's in October, November, and December are anticipated.

Mr. Costello said early weather pattern data from the U.S. Commerce Department's National Oceanographic and Atmospheric Administration suggest October will be 21 percent colder than in 2003; November, 11 percent colder, and December, 5 percent colder. January and February will be warmer, while March will be colder. He emphasized that temperatures will likely vary from state to state, and that the estimates provide an overall picture.

According to the Public Utilities Commission of Ohio's chart of gas contracts offered to consumers, prices have been creeping up slightly since the start of June.

For example, on June 8 the lowest fixed-rate one-year price available was an offer of 90 cents per hundred cubic feet.

This week the lowest one-year rate was 92 1/2 cents per hundred cubic feet.

Steve Jablonski, a spokesman for Columbia Gas of Ohio, said it seemed too early to predict that heating costs will go up even 10 percent because weather is so unpredictable.

"I have trouble guessing beyond three days," he said.

"I do think rates will be higher than they have been over the past 5 to 10 years, but what impact that will have on customers' bills is impossible to speculate on because the weather plays such a large role," Mr. Jablonski added.

Jeffrey Mayer, chief executive of MxEnergy Corp., a marketer of natural gas that supplies customers in Ohio, cautioned that early predictions about weather patterns often prove incorrect. "Several winters in the '90s turned out to be mild and prices dropped below the summer prices," he said.

That said, there are several significant factors that could make the Energy department's forecast come true, Mr. Mayer added.

"At the risk of sounding alarmist, we could be setting ourselves up for a perfect storm in that there are three major factors out there in energy prices," Mr. Mayer said.

First, the economy is rebounding and creating greater demand for natural gas.

Second, oil prices are at record highs and affect natural gas prices.

Lastly, winter is expected to be colder than usual, he said.

"If it is cold, you'll see a lot of additional demand. If there's normal to mild temperatures in the winter it's possible there will be plenty of gas to meet the demand from the economy," Mr. Mayer added.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128



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