Heat Bill Forecast: Moderate

Mild temperatures and ample natural gas supplies appear to be in the offing

Joao-Pierre Ruth
NJBIZ Staff

November 27, 2006

ISELIN - With winter’s chill approaching, experts say the outlook for natural gas heating costs looks moderate. There is plenty of supply and early forecasts are for a relatively mild heating season similar to last year’s.

December and January are the core months to watch in the natural gas market. So far, observers expect a moderate season. “We had a mild winter last year and that resulted in storage being at levels higher than the five-year average,” says Tony Robinson, director of basic gas supply service for PSE&G. “We have for most of the country a forecast for this winter of normal to slightly warmer than normal. There again, you can always be surprised.”

Among those carefully watching the weather is Jeffrey Mayer, CEO of natural gas supplier MXenergy in Stamford, Conn., who has been meeting with New Jersey customers to discuss energy-purchasing decisions as the nights grow colder.

“Right now, energy costs are higher than they were a few years ago and less than last year,” says Mayer, whose New Jersey clients include restaurant chains, bakeries, auto dealers, stores and school districts. “If you’re a restaurant or a dry cleaner, you can’t go to your customers at the end of the month and say, ‘My energy costs were higher than I thought, can you kick in another quarter per shirt or another 50 cents for that slice of pizza?’

“We came out of last winter with an overhang of gas supply because of the very warm winter,” adds Mayer. “Last January, people were going around in shirt sleeves.” As of Nov. 10, natural gas in storage nationally stood at 3,450 billion cubic feet, 7.4 percent higher than the five-year average according to the U.S. Department of Energy.

On the other hand, says Mayer, “If we have a cold winter and that excess gas is consumed, we will go into next year with potential shortages.”

Utilities hope for a predictable market. “Last year was such a wacky pricing environment,” says Tim Rundall, director of gas supply and off-system sales for South Jersey Gas, a subsidiary of South Jersey Industries in Folsom.

Rundall says last year’s combination of a stormy fall followed by a lukewarm winter made for big swings in pricing. “We had just come out of the worst hurricane season the Gulf of Mexico had ever seen as far as natural gas and oil production go,” he says. “Prices were uncharacteristically high to begin with going into last winter. But last winter was very mild, so prices came back to earth.”

He says the price of natural gas ran in the $11-to-$12-per-decatherm range at the beginning of last year’s heating season, but dropped to $7 by March. A decatherm is equal to 1,000 cubic feet of gas, or 1 million BTUs. “Prices dropped nearly in half from the beginning of last winter to the end of last winter,” says Rundall. “Even if we have another mild winter, I wouldn’t expect to see natural gas prices cut in half between November and March.”

He foresees another moderate winter, but can’t discount a possible cold snap. “There is always a built-in fear in the marketplace that we could have a real cold winter and prices could go up,” he says. “What we're expecting is a winter that is a little bit warmer than normal but colder than last year, because last year was so mild.

However, “as soon we see some cold weather you can expect to see the price of natural gas jump on the New York Mercantile Exchange.” Last week natural gas futures traded for about $8 per million BTUs on the exchange.

While about 97 percent of the natural gas used in the United States comes from domestic sources, increasing use of liquefied natural gas (LNG) from foreign suppliers could change the market. When natural gas is cooled to minus 259 degrees Fahrenheit, it becomes a clear liquid that can be transported by ship and stored in terminals.

“As liquefied natural gas facilities get more popular moving forward, the U.S. market will have to compete for those LNG (liquefied natural gas) loads,” Rundall says. BP has proposed an LNG terminal called Crown Landing on the Delaware River in Logan, but neighboring Delaware opposes the project.

“That facility could really create a new dynamic in the Northeast in terms of LNG usage,” Rundall says. “It probably would help to stabilize the price of gas in the Northeast.”

Mayer sees booming development in China and India leading to growing competition for natural gas. “It’s not [just] U.S. demand that drives energy prices, it’s often demand out of China and India,” he says. “With the Chinese economy growing and the developing world increasing its demand for energy, we find ourselves competing in a global market.”