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Prices for heating to increase

Natural gas supply lines disrupted by Katrina are expected to increase the load on Missourians’ pocketbooks this winter.
Wednesday, September 14, 2005 | 12:00 a.m. CDT; updated 10:45 p.m. CDT, Monday, July 21, 2008

Mid-Missouri residents are going to take a hit when it comes to heating bills this winter, according to national energy estimates.

The cost of natural gas is expected to rise to unprecedented levels over the next several months, the Energy Information Administration reported earlier this month. The Energy Information Administration, a branch of the Department of Energy, estimates increases of 37 percent to 50 percent as compared to last winter.

The Midwest may be particularly vulnerable to price fluctuations because of the drastic increase in demand that takes place when temperatures go from very high to very low. Prices are expected to peak at $11 to $13 per thousand cubic feet (a unit used for measuring natural gas) this winter, up from about $9 this August.

“We haven’t really seen the sort of supply response that was expected,” said Damien Gaul, an expert on liquefied natural gas with the Energy Information Administration.

Hurricane Katrina has temporarily damaged one major pipeline near the Gulf Coast that will continue to affect prices well into the winter.

As of Tuesday, natural gas was trading at about a dollar more than it was before the hurricane hit.

“I would definitely say that Katrina is a major reason for that,” Gaul said.

Natural gas is generally used for residential and commercial heating and power. It constitutes about a quarter of the total energy consumed in the United States.

Ameren provides natural gas to most of Missouri, purchasing it from outside companies and then distributing it to residential and commercial consumers. Spokesman Mike Cleary said that while the state may take a hit on heating costs, it may not be affected to the same degree as other markets because natural gas is not a major source of electricity in Missouri.

“In Florida, for example, they tend to burn a lot more natural gas than we do,” Cleary said.

Missouri ranked 24th in overall natural gas consumption in 2003.

“You want to have diversity in energy,” Cleary said. “Coal, nuclear and hydropower are all cheap” sources of energy compared to natural gas.

About 40 percent of Columbia’s electricity is provided by the city’s coal-burning municipal power plant. Nuclear power comes from the nuclear plant in Callaway County, which is owned and operated by Ameren, and hydropower is provided by three plants around the Midwest, most notably Bagnell Dam at the Lake of the Ozarks.

Ameren has several safeguards in place to help keep prices stable. It uses hedging strategies, purchasing natural gas when prices are low and storing it in hopes of avoiding higher prices when they occur. It also diversifies its suppliers so as to not get locked into a particular price and to create competition.

“But when the whole market is up, we’re still paying more,” Cleary said.

These strategies by themselves may not be enough to totally curb costs, especially in the wake of an unexpected disaster such as Hurricane Katrina.

“In general, many utilities spread out their buying over the course of the year,” Gaul said. This may make it difficult to entirely avoid price fluctuations.

About 75 percent of a residential, natural gas bill from Ameren is derived from the cost of the gas itself. Price factors on top of that include distribution costs, meter reading and other overhead, Cleary said.


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