Natural Gas Prices Expected To Increase 17 Percent This Winter
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October 31, 2002

Natural Gas Prices Expected To Increase 17 Percent This Winter

Colder weather has reached Missouri and consumers have turned on natural gas furnaces for the first time to take the chill out of their homes.

While temperatures began to drop off, consumers can expect an opposite trend as far as the cost of natural gas, a key component in heating homes and businesses.

Instability in the Middle East, increased industrial natural gas consumption and the likelihood of colder winter weather have all factored into a heating season formula which the federal Department of Energy indicates could mean higher natural gas prices this winter versus last.

The federal Department of Energy has estimated that home heating costs could increase by an average of 17 percent for natural gas customers.

The Energy Information Administration in Washington D.C. has projected that natural gas wellhead prices will range from $2.91 to $3.19 per MMBtu through December 2002 and then increase to $3.53 in January 2003, the peak demand month of the heating season.

Natural gas prices climbed sharply in late September as hurricanes Isidore and Lili caused production shut downs in the Gulf of Mexico. However, this price surge is expected to be short-lived, unless the weather in October is unusually cold or if additional storm activity in the Gulf curbs production further.

Overall in 2002, wellhead prices are expected to average about $2.76 per MMBtu compared with $4.00 in 2001. Prices during the upcoming heating season (November through March), assuming normal weather, are expected to average $3.32 per MMBtu, which is about $0.96 higher than last winter's price. Prices to residential customers during the heating season are expected to average $7.55 per MMBtu compared with $7.14 last winter.

Domestic dry natural gas production is projected to fall by about 1.2 percent in 2002 compared with the 2001 growth rate of 2.4 percent. Lower natural gas prices have reduced production and resource development incentives from their highs of last year. Still, current supplies, including natural gas in storage, appear to be at very comfortable levels. Working gas in storage has remained well above the previous five-year average since the beginning of the year.

As of October 4, working gas stocks were 3,080 Bcf, which is nine percent greater than the five-year average and about three percent greater than last year at the same time. Furthermore, natural gas-directed drilling, while down sharply from 2001 levels, is still quite strong by a longer historical perspective. The weekly gas rig count in September averaged 736, which is nearly 25 percent more than the recent low of 591 for the week of April 5.

In 2003, production is expected to rebound by 2.8 percent as demand rises and inventories fall back closer to normal.

Natural gas demand is expected to increase through the rest of 2002 and into 2003 because of the expectation of a continued upswing in the U.S. industrial economy in the next few months and the return of colder weather.

Overall in 2002, natural gas demand is projected to increase by 3.6 percent over 2001 levels as higher estimated demand in the industrial and power sectors more than offsets the declines in space-heating demand in the first quarter of 2002.

Also, heating-related demand during the fourth quarter of 2002 is expected to be greater than during the same period in 2001.

In 2003, natural gas demand growth is expected to increase by 3.5 percent as the economy continues to recover. In 2003, natural gas demand growth is expected across all sectors.

With continued colder temperatures on the horizon, the Missouri Public Service Commission has begun to caution consumers to be prepared for the winter heating season.

"Each year as winter approaches, thousands of Missourians enter the heating season without natural gas service due to service disconnections for non-payment or who face disconnection of service if they don't make the necessary payments," stated PSC Chairman Kelvin Simmons. "We encourage people who have had service disconnected for nonpayment or who face disconnection for non-payment to work with their natural gas company to settle past due bills now and avoid the potential of entering the winter heating season without service."

However the Missouri Public Service Commission has no control over the pricing of natural gas and has no jurisdiction over the price of propane.

"What wholesale suppliers charge the local natural gas company for natural gas is not regulated by the Missouri Public Service Commission," stated Chairman Simmons. "With regard to wholesale supplier rates, our primary role at the Public Service Commission is to ensure that the local natural gas company makes prudent decisions in its purchasing of natural gas for its customers."


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