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Published: Friday, 10/16/2009

Natural gas prices high from some contractors


Fixed-rate contracts with independent suppliers of natural gas in metro Toledo are noticeably pricier than the monthly rate by Columbia Gas of Ohio and what industry experts say should be a low-priced winter for the heating fuel.

Prices for those fixed-rate contracts have changed little in the past 2 1/2 months, mainly because speculators concerned about future supplies have kept the longer-term prices elevated for the commodity, experts said.

So, experts said, it may make little sense now to enter into a one or two-year contract for natural gas, used mostly in the winter in metro Toledo to fuel home furnaces.

The Columbia Gas rate, adjusted each month, will be 56 cents per 100 cubic feet in November, its lowest for any month since 2001 and about half the rate of a year ago.

"It probably wouldn't be a bad idea to look at [variable rates] right now, but the struggle you always get into is there's always a push-pull," said Mike Welch, an official with Integrys Energy Services.

His company has a 12-month rate of 74 cents, but has a monthly variable rate of 58 cents.

When rates drop, he explained, prices for consumers get pushed down, but natural gas producers usually respond by shutting down their gas wells or halting drilling of new wells to hold down inventories. That leads to a pull back up of prices as natural gas supplies are reduced.

Mr. Welch said it's easier to price on a monthly basis because of what's known about the short-term.

"We've had a bad economy with very light industrial demand, and that has really contributed to a very, very strong storage situation," Mr. Welch said. "Storage today is at an all-time high.

"It's never been this high, and you still could have three or four more weeks" of storage, he said.

Mark Frye, a consultant with Palmer Energy in Toledo, said the independent suppliers base their prices on the commodity futures prices traded on the New York Mercantile Exchange. Those speculators are concerned about wells being shut down and a big drop in supplies, thus raising prices, he said.

"There is that fear that's kind of built into the marketplace at this particular point. People are worried that the numbers may mean that production is on the decline," Mr. Frye said. "If we get a warm winter, it won't matter, but if it's cold, it will."

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