Upcoming heating costs are anyone’s guess

As you ponder how much natural gas will cost this winter, just know that the price of home heating in Minnesota has plenty to do with the weather, hurricanes, Asian earthquakes, Spain’s extended drought, Russia’s spat with Georgia, Canadian tar sands, and shale rock sitting beneath Gulf Coast states. 
And with all of the above in play, natural-gas prices are in one of the most volatile pricing periods in the commodity’s history.
“We had a good summer, weatherwise,” said Tim Carter of Xcel Energy. “But if winter starts with an extended cold snap, it could affect prices.”

How much will Minnesotans pay for natural gas this winter? The answer in July was that home-heating costs would be up as much as 50 percent from a year ago, when gas prices skyrocketed along with the price of crude oil.  
Then came a price drop
Then came August, when gas futures tumbled through one of the biggest price drops ever, going from nearly $14 per million BTU to under $8. 
“There may be a moderate increase in gas-heating prices this winter, or it could be a little more,” said Rebecca Virden of CenterPoint Energy in Minneapolis. “We just don’t know for sure, and no one does.”
Chief among the near-term variables, Virden said, are the economy and weather. This year’s cool spring added 10 percent to the number of heating days, which complicated the build-up of reserves for the coming winter (a situation that’s been largely overcome).
Gas prices have historically been tethered to crude oil, but that’s changed due to a major breakthrough in how to recover gas locked in the “tight rock” of the giant Barnett Shale field in Texas and Louisiana.
A warning about supplies
A year ago some experts warned that gas, like oil, had “peaked” and that supplies would be hard to come by, especially in the face of growing demand here and overseas.
But that was when vertical drilling limited how much gas could be extracted from the hard shale. Now, engineers have developed a process of fracturing the rock and flushing cavities with water that pushes gas to horizontal pipes — a process that has suddenly made trillions of cubic feet of gas available in North America, helping drive down gas futures.
“It’s a silver lining in the supply picture,” said Vincent Chavez, a natural gas expert at the Minnesota Department of Commerce. Gas fields were becoming depleted, he said, with smaller numbers of fields and a decrease in output per drilling rig.
But the new horizontal drilling process will still mean that prices will drift upward, because the new gas-extraction techniques are more expensive.
Worldwide, a kaleidoscope
Worldwide, the natural-gas picture is a kaleidoscope of competing parts that leave analysts with little more certainty than posted daily prices. 
While Minnesota is in an enviable position of drawing from multiple sources for gas supply, Chavez said, all sources gas served up some kind of challenge.
In the United States and especially Canada, there was hope that dwindling supply could be offset by imports of liquefied natural gas (LNG). Canadian production is down, and the need for natural gas to cook oil out of Alberta tar sands meant that Canadian exports to the United States would be down sharply.
Internally, Canada was looking to buy LNG from Russia. But the conflict with Georgia sent anxiety through Europe, which relies heavily on natural gas from Russia, and that helped upend supply that was to go to North America.
Two other events have dried up supplies of LNG.
Drought in Spain
One is the prolonged drought in Spain, which relies heavily on hydropower from reservoirs that now are down because of the prolonged drought. LNG is the stopgap answer there.
The other is the powerful earthquake in Japan earlier this year that sent a scare into operators of two nuclear power plants. Japan is in convergence of four continental plates, which puts it in the crosshairs of earthquakes. Rather than risking a major loss of its nukes, Japan purchased LNG on the world market at prices that are more than twice the North American benchmark of $8 to $10 per million BTU, and that pricing move that helped dry up supply.
In Minnesota, meanwhile, all eyes are on the thermometer because, as Xcel’s Carter said, that will be a primary driver of gas-heating costs.
CenterPoint’s Virden said that interested consumers can go to two websites for added information about costs: one about billing and payment options and one with energy-conservation tips.

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Comments (1)

  1. Submitted by david granneman on 12/23/2008 - 02:41 pm.

    hello all
    in minnesota we are going to see our electricity and gas bills skyrocket all due to the actions of the minnesota state legislature.
    1. minnesota has banned the expanding of the cleanest and most reliable energy on the earth = NUCLEAR ENERGY.
    2.minnesota has mandated we expand the most expensive and unreliable energy – wind energy.
    3. minnesota has mandated coal power plants be converted to natural gas – this mean power plants will be compeating with home owners for natural gas – causing the prices to increase.
    4. minnesota has prevented the builing of a major power line which would bring cheap electricity from big stone II in south dakota to minnesota.


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