With natural gas prices spiking, will you feel the pain?

With natural gas prices spiking, will you feel the pain?

Natural gas prices in the U.S. have been surging of late and that, analysts say, means utility customers across the country can expect to pay more in the coming months.

What it may mean for San Diego utility ratepayers remains to be seen. 

“Low commodity, low natural gas prices have been a good thing for customers over the past several years and any increase in the price of that commodity will lead to higher bills for customers,” said Andy Smith, a senior analyst for utilities for Edward Jones

The price of natural gas has risen more than 11 percent in the past two weeks and is up by almost 44 percent since February, surpassing the $3 per million British thermal units plateau for the first time in 16 months.

Those prices are still considered historically on the low side — in June 2008, the Henry Hub benchmark price for natural gas was at $12.69 — but last Thursday the U.S. Energy Information Administration said in a report that consumers across the country can expect to pay 22 percent more for natural gas this winter. The EIA report anticipates colder weather for the United States and more consumption, which is expected to lead to highest winter natural gas prices in the past six years.

But a spokesman for San Diego Gas & Electric says the commodity price of the gas it supplies customers comes from a receipt point called the Southern California Border Price, which varies from the Henry Hub receipt point in Louisiana.

“The procurement price for November won’t be determined until the final week of October,” said SDG&E communications manager HananEisenman. 

Since July, Eisenman said, SDG&E’s gas procurement price has remained essentially unchanged.  

“SDG&E provides energy to customers at cost with no markup,” Eisenman said. “We do not earn profits from the price of the energy commodity. It’s a simple pass-through.” 

Smith emphasized that while natural gas prices have gone up 44 percent that does not mean utility customers’ bills will go up proportionally.

That’s because, generally speaking, only about one-third to one-half of a customer’s bill is directly linked to the commodity price of natural gas.

The remainder of the monthly bill is associated with other charges such as infrastructure and fixed charges incurred by the utility.

“It’s not going to be a one-for-one increase percentage-wise,” Smith said Friday. “I don’t think it’s going to make a huge difference.”

Natural gas prices have been low for years due to large amounts of supply in the U.S., particularly because of hydraulic fracturing and horizontal drilling in places such as the Bakken Shale formation in North Dakota and the Utica and Marcellus formations in the region that includes Ohio and Pennsylvania.

But gas production has slackened in recent months as the low-price environment forced many companies to scale back drilling. There have also been pipeline bottlenecks in the eastern U.S. 

The shutdown of the Aliso Canyon natural gas storage facility in Los Angeles County — thelargest facility west of the Rockies in terms of the amount of gas that can be withdrawn each day — has raised concerns throughout the year about grid reliability in California.

As a result, the gas market has shifted from having a huge surplus by the end of the first quarter this year to being on track for a deficit in 2017.

According to a Reuters energy analyst, a natural gas surplus in late March surpassed 1 trillion cubic feet above year-earlier levels, but the surplus shrunk to 28 billion cubic feet in the first week of October.

After a rally last week, natural gas prices on Monday were down 4.1 cents on the New York Mercantile Exchange.

So where are natural prices heading?

“Your guess is as good as mine on that one,” Smith said. “I think from what most companies have said, we’re in for a prolonged period of low prices. Whether that means $2 or $3.50, I don’t know. They’re both considered low prices, historically.” 




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