New Mexico News
| Natural Gas Prices are Expected to Continue to Rise, Meaning Higher Heating Bills This Winter |
| Posted by Peter Phipps (pphipps) on Jun 10 2008 at 7:22 PM |
If you think the price at the pump is a pain, get ready for the threat at the thermostat.
An array of forces is pushing natural gas prices to record highs, which could mean significantly higher heating bills this winter.
PNM spokeswoman Susan Sponar said the utility's cost of natural gas is expected to be 43 percent higher this June than the same time last year.
She was quick to emphasize that natural gas, on which the utility doesn't make a profit, will make up only about 57 percent of customer bills, so its cost will mean only about a 27 percent increase over last year's June bills. That's about $41.44 for a resident using 21 therms.
The worry is these prices will continue to rise through the summer and into the fall.
It's too early to predict precisely what prices will look like this winter, said Gary Murray, PNM's manager of gas supply and system planning, and Tim O'Brien, general manager of the utility's natural gas acquisition group.
But, they added, futures prices for winter gas, a leading indicator of what to expect, are about 40 percent higher than they were at the same time last year.
"We're not seeing a lot of encouragement for low prices this winter," Murray said.
Weather remains the single greatest arbiter of natural gas prices in a given year, O'Brien said.
A hot summer could mean more people will use refrigerated air, meaning more natural gas is used to generate the electricity required to meet that demand.
Conversely, a mild summer could mean lower gas prices come winter.
Or, we could have a hurricane season like the one in 2005 when Katrina and Rita damaged gas processing sites along the Gulf Coast and reduced supplies.
There also are other forces at work.
Like a tornado, the price of oil— which broke $130 a barrel last week— can suck the price of natural gas up along with it, Murray and O'Brien said.
There are several reasons: Natural gas can be a byproduct of oil production; and it can be a replacement fuel for oil.
And, it can simply be emotional. The price of one goes up, and the other follows.
Declining supplies
A growing demand for gas is coupled to a steadily decreasing supply; there is less gas in storage facilities; and there is strong international competition for the small, but growing, fraction of the U.S. gas supply that's imported as liquefied natural gas.
The majority of PNM's supply comes from the San Juan and Permian basins, but supply from these basins has been declining for years— and that's true for basins all over the United States, the PNM officials said.
"We have natural gas we're not developing. It's the ANWR stuff; it's offshore stuff. We're just not developing new supplies," Murray said. "We haven't been and it's starting to come back on us. The only new production that's come on of significant size is in the Rockies."
Price increases also have affected the utility's strategy of buying gas to put in storage when rates are lower.
Utilities traditionally try to get their gas into storage when prices dip between the winter heating market and the summer cooling market. This year, O'Brien said, there hasn't been a dip.
"Nationally, our storage levels are lower than the five-year average," he said.
The United States is a net importer of natural gas.
The difference between what we produce and what we use normally is made up with imports from Canada. But, Canadian exports have decreased.
Canada also is experiencing growing demand, and current oil prices justify extracting oil from the tar sands of western Canada. That's a process that demands heavy use of natural gas.
This is where international competition for liquefied natural gas enters the picture.
LNG is natural gas that is cooled and compressed in liquid form so it can be shipped in containers.
Most of the world's LNG is produced overseas, and the United States is not a major importer. Murray and O'Brien said LNG is 5 percent of the U.S. natural gas supply.
However, as the U.S. supply of natural gas gets smaller, LNG could play a larger role.
Some companies foresee a long-term U.S. demand. Eight LNG terminals currently operate along the U.S. coastline, in Alaska and Puerto Rico.
The Federal Energy Regulatory Commission says 40 more LNG applications are either pending or being discussed by various companies.
The problem is the United States, where the March price for imported LNG was $8.92 per million Btus, must compete with countries such as Japan, where the price hovers around $20.
To the extent we increase imports of LNG, our domestic (natural) gas prices will be affected by international competition.
The fastest-growing sector for natural gas is its use as a fuel for generating electricity.
PNM spokesman Jeff Buell said the utility expects to increase its use from 1 million Btus in May to December 2007 to 4.8 million during the same time in 2008.
Part of that comes from the inclusion of PNM's 235-megawatt Afton plant in rate base.
Teresa Souza, a spokeswoman for El Paso Electric, which serves part of southern New Mexico, said her company expects a slight decrease in its use of natural gas this summer because it expects to use more nuclear energy from a recently repaired Palo Verde nuclear plant unit.
But, over the next five years, the majority of EPE's growth will be met with natural gas-fired generation, she said.
On the other hand, Wes Reeves, a spokesman for Southwest Public Service, which serves eastern New Mexico, said that company's use may have peaked in 2006. SPS hopes to conserve natural gas in coming years through the new technology in its soon-to-open Hobbs plant, plus efficiencies and retrofitting in older plants.
Unfortunately, that won't help SPS customers this year. Reeves said SPS expects bills to be more than 20 percent higher than last winter, primarily because of natural gas costs.
Drilling not the only answer
Gail Ryba, executive director of New Mexico's Coalition for Clean Affordable Energy, said more drilling isn't the only way to deal with the rising cost of natural gas.
With an aggressive energy efficiency program that included energy-saving steps like better insulation and increased use of alternative energy sources such as wind- and solar-power, New Mexico could stop the increase and even see a slight decrease in consumption in three to five years, she said.
But, Ryba added, natural gas is preferable to coal as an energy source, since it produces half the global-warming gases that coal does.
"There's no short-term solution. Gas prices are likely to hurt this winter and we'll need an increased heating assistance and weatherization program," she said.
Gas Cost Help
Public Service Company of New Mexico and state and local agencies offer programs that can help offset the cost of natural gas.
PNM's weatherization and insulation programs provide rebates of 25 percent up to $500 for insulation, ductwork leakage tests and sealing and air infiltration testing for your home.
Average costs for customers who have sought the rebates:
Insulation for attic, room wall, crawl or duct work about $1,900 before rebate.
Blower door test about $250 before rebate.
Duct sealing about $500 before rebate.
PNM also offers rebates on water heaters and commercial gas fryers for businesses.
For more information on PNM's residential programs, go to the PNM Web site at www.pnm.com/customers.
Free weatherization programs are available from the Central New Mexico Housing Corporation for families who meet low-income standards established by the Department of Energy. For more information, call (505) 345-4949, or (877) 345-4949.
In addition, under state law, families that meet the requirements for the federal Low Income Home Energy Assistance Program can receive a moratorium on their heating bills from Nov. 15 to March 15. For more information, call the New Mexico Human Services Department at (800) 283-4465.
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