Sharp rise for natural gas fearedBy JON CHAVEZBLADE BUSINESS...

Sharp rise for natural gas feared

By JON CHAVEZ
BLADE BUSINESS WRITER


As spring warmth allows homeowners and renters to turn off their furnaces, it may be time for tough choices about next winter.

Suppliers have just started to stockpile natural gas for the main area heating fuel for winter, and it doesn't appear there will be a shortage.

Nonetheless, experts are concerned that prices are higher than normal and could rise significantly this summer.

"The price doesn't follow the fundamentals, but who knows what the fundamentals are right now?" said Greg Collins, president of Vectren Source, of Evansville, Ind., an alternative supplier that sells gas in the Ohio market.

"We've been advising customers if they already have a fixed price they're comfortable with, stay with it. If you're looking to renew, go with a variable for now."

Energy analyst Jim Halloran, of National City Private Client Group in Cleveland, said it is difficult to determine what homeowners should do.

Most natural-gas providers require a one-year or two-year contract from customers who want a fixed rate, and those are about the same as what Columbia Gas of Ohio may charge.

"It would not be bad to lock in a price you can live with, because I don't think you will be able to do anything better later," he said.

Consumer prices in northwest Ohio generally range from $1.21 per 100 cubic feet charged by Columbia Gas of Ohio to $1.42 by another supplier. The rates were below $1 in October, but have been high most of the past three years.

Wholesale prices for natural gas are high now, about 50 to 60 percent higher then normally, experts said. And they are rising despite the absence of a supply shortage.

Through April 11, about 1,261 billion cubic feet had been put into underground storage fields in the country, a drop of 19 percent from a year ago but less than half a percent below the five-year average.

Jose Villar, a natural-gas expert with the U.S. Energy Information Administration, said the amount going into storage was expected to be down after high consumption last winter.

He was "cautiously optimistic" that supplies would be sufficient for next winter.

Government forecasts are for natural gas consumption to rise 1 percent this year and less than 1 percent in 2009. Consumption may not hit those levels if the economy and housing markets continue their slumps, a recent report said.

Additionally, U.S. production of the fuel is expected to increase by nearly 3 percent this year.

But there are wild cards.

Liquefied natural gas, which had been coming to U.S. shores in record volume, is being diverted to Asia and Western Europe. The federal energy agency projects that shipments will total about 680 billion cubic feet in 2008, a 12 percent decline from last year.

Another uncertainty, Mr. Halloran said, is natural gas from Canada, where drilling and production have been significantly reduced. Surpluses from Canada helped offset higher-priced U.S. natural gas in recent years.

Also, the rising prices of crude oil, which usually doesn't affect natural gas significantly, is having an impact. But as the price of oil rises, trading and demand for natural gas have been rising. "You're starting to see a global market for natural gas, diesel, and oil," Mr. Halloran said.

Chris Kozak, a spokesman for Columbia Gas, the major provider to much of central and northwest Ohio, said the utility's experts are wary of predicting prices.

"The short answer is we don't know where prices will be this summer," he said.

Weather can boost prices. A weather forecast center at Colorado State University this month predicted 15 hurricanes for the Gulf Coast this summer. An average summer has about six hurricanes. Several natural gas drills and storage areas were damaged during Hurricane Katrina and others two years ago.

Contact Jon Chavez