Just as some homeowners are getting heating bills that are double what they were a year ago, wholesale prices for natural gas hit record highs Wednesday, signaling that costs might grow even higher for a commodity long considered “cheap energy.”
A host of factors–from a strong economy to shifts in the way electric utilities make power–have conspired to drive prices to record highs, putting a pinch on family budgets.
Richard and Marge Schilf of Park Forest, retired and living on a fixed income, got a November bill for $99.60. Last year’s bill was $44.20. “We knew that things were going up,” said Marge Schilf, but what they paid in November looked like a January bill to them.
After months of increases, natural gas prices continued to rocket Wednesday on the New York Mercantile Exchange, reaching an all-time high of $8.80 per million British thermal units (the industry’s standard measurement) for January contracts.
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The NYMEX closing price was $8.48, up 15 percent from Tuesday’s close of $7.38, which itself was just below a record high close set Monday. Last spring, prices were about one-quarter what they are today, as gas was selling at about $2.
“People are very, very concerned that our excess supply of natural gas is severely strained,” said Phil Flynn a trading analyst at Alaron Trading Corp. in Chicago.
“Some people believe that if we have a colder than normal winter, supplies will not last,” Flynn said. “Infrastructure has not grown to meet demand.”
Craig White, a spokesman for Nicor, the natural gas company serving most of northern Illinois outside of Chicago, said his company believed it had sufficient supplies for the winter.
But the U.S. Energy Information Agency, a statistical agency with the U.S. Department of Energy, issued a consumer warning Wednesday about higher natural gas prices.
The EIA predicted that U.S. natural gas supplies in storage at the end of the first quarter of 2001 would be half the supply the U.S. had at the same time last year.
“Consumers are going to expect high prices for the next couple of years,” Flynn said. “How high they go is anybody’s guess. Mother Nature is going to have a big say in this, and we’ve been pretty lucky the last couple of winters.”
The higher prices, which local gas companies have been warning consumers about for several months, are finally showing up on customers’ bills.
The typical Chicago residential customer bill last month was $161, up 67 percent from November of 1999 when the average bill was $96, a spokesman for Peoples Energy noted.
Nicor customers’ bills for the entire heating season are likely to be almost double. This winter the average customer bill is expected to be $780 for the season, compared with last year’s average customer bill of about $400, according to Nicor Gas.
A number of factors have contributed to the rise.
The U.S. has enjoyed cheap natural gas prices for the last 15 years. But the low prices deterred drilling and exploration, which hardly seemed profitable when the commodity was selling at $2 per million British thermal units. As exploration waned, natural gas supplies stagnated.
And although the Midwest has had cold snaps before, the extraordinary demands the nation’s strong economy have placed on natural gas as a source for all kinds of electric power finally have hit home.
Historically, local natural gas companies purchase supplies in the summer when prices are lowest and store gas for the winter months when demand and prices peak.
Because gas has been relatively inexpensive, an increasing number of electric power plants are now fired by natural gas. The nation’s economic growth, which fueled business expansion, propelled computer use and a home construction boom, has contributed to stronger year-round demand for electricity.
“We’ve defaulted as a nation to natural gas by prohibiting other forms of power generation that have a less favorable environmental impact,” said Ed Kelly, president of North American Gas for Cambridge Energy Research Associates.
“It was the best idea we had,” Kelly said.
The good news is that drilling companies have responded to the high prices by setting up a record 800 to 900 natural gas rigs. But it could take six to 18 months for those sources to bring more gas supplies to market.
The result, high prices, prompted Mayor Richard Daley on Tuesday to take Peoples Energy to the Illinois Commerce Commission to force the company to stretch out payments for customers. On Wednesday, Daley said that if consumers can’t afford to pay soaring gas prices, they risk being shut off.
“It endangers the lives of senior citizens or the disabled or children,” he said. “We think there has to be some common sense, whether it is an extended payment plan or a budget plan because of the high natural gas prices, and that is legitimate.”
Chicago’s Department of Human Services, meanwhile, sent out more than 10 teams of caseworkers Wednesday morning–many were pulled off their normal caseloads–to address dozens of new weather-related cases that were reported overnight and during the cold snap.
On Tuesday alone, 325 heat-complaint calls poured into city offices, representing almost three times as many calls as the city received during the entire weekend before. As of 5 p.m. Wednesday, the city was on target to surpass that number, with 310 heat complaints already called in.
Peoples officials said law and company policy protects customers in the winter. By state statute, gas cannot be turned off when the forecast low temperature is below 32 in a 24-hour period. Under a more far-reaching company policy, there are no residential turnoffs after Nov. 1, a spokeswoman said.
A total of 157,000 of the utility’s 837,000 customers now are on the company’s 12-month budget plan, which is 10 percent more than last year, company spokesman Luis Diaz-Perez said.
Marty Cohen, executive director of the Citizens Utility Board, said CUB would like the utility to make it easier for customers to sign up for the plan, such as by simply checking a box on their bill. With so few people enrolled, he expects to get a lot of phone calls this winter.
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“The brunt of this has not been felt and won’t be until people get their January bills,” Cohen said. “I think people will be shocked, despite the fact that there has been publicity about the rising prices.”
Brenda Morgan of Chicago’s Brighton Park neighborhood has already noticed the increase. She and her husband enrolled in the 12-month budget plan and were notified that their next monthly payment would be $88, up nearly $40 from last winter.
“It sets us back,” said Morgan, 27, who has two children, ages 5 and 15 months. “We need new clothes for the kids.”
The high bills have some people looking for alternative ways to heat their homes. At Lumberjack Firewood in Woodstock, demand for the company’s seasoned hardwood firewoods is way up, according to spokeswomanAnn Foss.
“We’ve been selling wood since August,” Foss said. “Normally we don’t get busy until the end of September. We’re getting lots of comments from people who are worrying about gas bills going up.”