Will costs for heating soar in fall?

By Don Shilling

Since January, Dominion has increased natural gas prices 57 percent.

Angry about the price of gasoline? Perhaps you haven’t noticed what’s happened with natural gas.

The average price of gasoline in the Mahoning Valley rose from $3.11 a gallon at the first of the year to $3.97 Thursday. That’s a 28 percent increase.

The cost of natural gas for local customers has risen twice as fast.

Dominion East Ohio was charging its customers $8.61 per thousand cubic feet of gas in January. This month, the charge is $13.56.

With a 57 percent increase over five months, how worried should homeowners be about their heating bills this fall and winter?

It’s too early to tell, said Neil Durbin, a Dominion spokesman. Much will depend on how hot this summer is, he said.

Many of the nation’s power plants are fueled by natural gas, so an increased demand for electricity to run air conditioners will draw down the supply of natural gas, he said. That would lead to even higher prices by the end of summer.

Two industry analysts said, however, that they expect prices to be lower by the time winter rolls around.

James Williams of WTRG Economics in London, Ark., said drillers have been rushing to put a record-setting number of new wells into production. These wells should boost supply enough this year that prices will be forced down, he said.

New technology is allowing drillers to extract oil in shale deposits that they couldn’t reach before, he said.

About 30 percent of the natural gas used this year will come from wells drilled within the last 12 months, he said.

Building up the supply of natural gas is critical to bringing down the cost, he said. From February 2006 through the end of last year, supplies were running above normal, he said.

But a cold winter ate into supplies, and utilities have been unable to get those levels back up to normal, he said.

“We’re having a pretty hot spring,” he said.

Valerie Wood, president of Energy Solutions in Verona, Wis., said the price increase this year defies the normal laws of supply and demand. No event has been dramatic enough to push prices up so fast, she said.

She attributes the increase to speculators, specifically Wall Street investment funds that focus on commodities such as natural gas, oil and agricultural products. The amount of money flowing into these funds has risen dramatically, which causes fund managers to buy more commodity contracts and forces up prices, she said.

Investors keep pouring money into the funds because the managers keep predicting higher prices, she said.

The cost of buying gas Thursday rose to $13 per thousand cubic feet, compared with $7.50 a year earlier. Wood said less than $1 of that increase is related to supply factors and the rest is tied to speculation.

She said she thinks prices could fall back to last year’s levels once investors sense the price escalation has stopped and pull out of the market. She expects that to happen in four to six months because she thinks demand will fall.

A sagging economy has some industrial users lengthening summer shutdowns or considering moving plants overseas, she said. The auto industry is downsizing. She expects residential users to use less air conditioning this summer as they struggle to pay higher food, gasoline and utility bills.

Durbin said he couldn’t comment on speculation in the market, but added that Dominion holds the position that the best way to bring prices down is to increase supply. Production in existing natural gas fields in Texas, Oklahoma, Appalachia and the Gulf of Mexico has already peaked, he said.

Dominion supports drilling in offshore areas in the gulf and along the east and west coasts that have been ruled off limits by federal regulations designed to protect the environment. Opening up such areas for oil and natural gas drilling is being debated in Congress.

shilling@vindy.com