Natural Gas: Tight Supplies, High Prices

January 1, 2006 – Vol.10 No.41

NATURAL GAS: TIGHT SUPPLIES, HIGH PRICES.

According to Platts, the energy information service of McGraw-Hill, the U.S. monthly natural gas spot wholesale price for January 2006 rose to $9.95 per million Btu (MMBtu), 2.7 percent higher than one month ago and an incredible 67 percent higher than the January 05 price.

Some areas of the country are getting hit worse than others. In the Northeast utilities are paying $13.69/MMBtu up 8.9 percent over December and 73.1 percent higher than January 2005, ditto for the Upper Midwest.

Natural gas, Platts says, has never been more expensive.

Many consumers are getting slammed in two directions. If they heat and bathe with natural gas they’re seeing their gas bills skyrocket. If the electricity they’re buying is generated by natural gas-fueled power plants they’re paying a premium on their bills for the higher prices.

Why is natural gas suddenly so costly? The lack of domestic supply. The large number of natural gas-fueled power plants. Winter. The consumer demand for natural gas heating equipment in new homes. And, a lack of regulation and leadership in regard to the natural gas industry.

(No one told natural gas power plant builders that their nice new facilities might tax existing gas supplies. No one told homebuilders or home buyers that the days of cheap natural gas might be over due because of the lack of supply.)

Analysts and government officials seem to agree that we need to import more natural gas which will mean more liquified natural gas (LNG) terminals and more LNG ships to feed them. Some analysts say the lack of LNG ships is actually the bigger problem - and, like terminals, ships aren’t built overnight.

What can consumers do beyond the usual conservation tactics? Take advantage of the $300 tax credit for on-demand, tankless hot water heaters and have one installed ASAP. The sooner it’s installed the sooner it will begin to save.

A hot water heater is the second largest user of energy in American homes. The credit is only applicable to models with an Energy Factor of at least 0.80 (as determined by the U.S. Department of Energy). Bosch says it sells 16 models that meet that standard. Rinnai has at least one model above 0.80. (Other manufacturers may have them as well.)

Another opportunity for homeowners might be to switch to a new heating and cooling system, albeit at a much larger investment. The best choice might be a heat pump with gas back-up/supplemental heating - a hybrid system - depending on where you live of course.

A new state-of-the-art, highly-energy-efficient heat pump (which would provide air conditioning in warm months) would likely provide lower cost heating than a full time gas furnace at current gas prices. For an occasional blast of hot air to take the chill off the gas furnace can be turned on.

Carrier has announced that it is now offering HybridHeat (TM) which is a heat pump with a gas back up as described above. Further, the company says that if natural gas prices fall in the future, homeowners could ignore the heat pump in the winter are go back to gas heating.

Naturally homeowners should do an analysis of their heating and hot water needs as well as the cost of upgrading. A contractor should be able to assess the situation, but they should be using up-to-date energy cost data that assumes the worst: natural gas may be even more costly next year and beyond.

Visit Platts at http://www.platts.com/ , Bosch hot water heating at http://www.boschhotwater.com/ and Rinnai at http://www.foreverhotwater.com/