Natural Gas Prices At 7-year Low

Consumers Might Want To Look At Fixed-price Contracts From An Alternate Supplier, Analysts Say

August 29, 2009|By Liz F. Kay | Liz F. Kay,liz.kay@baltsun.com

Large supplies and the poor economy have pushed natural gas prices down to seven-year lows, which might prompt consumers to consider a fixed-price contract from an alternate supplier before the winter heating season begins - especially if they still remember last winter's sky-high bills, analysts say.

But this year, consumers will be placing bets not only on the weather but also on how quickly the economy recovers.

"There's the expectation that even a modest economic recovery will boost natural gas prices," said Addison Armstrong, director of market research for Tradition Energy. "Consumers should be aware of where prices are headed and realize, on a historical basis, these are very low and attractive prices."

FOR THE RECORD - An article in Saturday's editions about natural gas prices incorrectly described Petroleum & Associates Corp. It is a closed-end fund. An information box with the article described an alternative gas supplier incorrectly. It is NOVEC Energy Solutions.
The Baltimore Sun regrets the errors.

Natural gas cost about 25 cents a therm on the wholesale market Friday, about a fifth of the peak price last summer. Prices paid by residential customers of Baltimore Gas and Electric are always higher than wholesale, but those, too, have plunged during the past 12 months.

Doug Ober, chairman and CEO of Petroleum & Resources Corp., a Baltimore mutual fund, believes consumers still have a few weeks to make a decision.

"The current large surplus of gas would probably continue into winter and conceivably into spring," he said. "You could get a little bit lower price, but I wouldn't wait too long."

An especially cold winter or rapid economic recovery could cause prices to head back up, he said. So could a hurricane on the Gulf Coast, where many natural gas wells and shipment facilities are located.

But the supply glut is so large that the odds are tilted toward lower prices in the short term. Pipelines are so full that some producers can't sell their gas because there is no place to put it, Ober said.

"Basic supply and demand would say prices should drive even lower than they are now," he added. "I would say that you could probably wait two, three, four weeks," and lock in prices a few cents lower.

About half a million households buy gas from BGE. Unless consumers switch to an alternate supplier such as BGE Home or Washington Gas Energy Services, BGE's natural gas price floats with the market from month to month.

The company has already secured much of its supply for the coming winter but continues to buy as prices keep falling, said Mark D. Case, BGE's senior vice president for regulatory affairs.

BGE officials anticipate that its customers will see a 30 percent reduction in their natural gas bills compared with last winter, when many people experienced sky-high charges not only for gas but also electricity. Company executives told regulators that several factors, including lower temperatures, high energy costs and varying billing cycles, contributed to the unexpected bills.

State regulators also considered requiring utilities to lock in winter prices in advance but have not issued a ruling, Case said. Consumer electric rates haven't fallen as far as natural gas prices, partly because BGE bought electricity for multiyear periods when prices were high.

But wholesale electricity prices have fallen, and residential prices are expected to come down a bit starting in October as BGE's expensive contracts start to expire.

Alternate gas suppliers

These companies offer fixed-price contracts

BGE Home :

13-month contract: 89.9 cents per therm

Washington Gas Energy Services :

12-month contract: 71 cents per therm

24-month contract: 85 cent per therm

Northern Virginia Electric Cooperative:

12-month contract: 84 cents per therm

Source: Office of People's Counsel

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