Natural Gas Prices Expected To Be Lower This Winter
Hartselle Utilities has locked in the majority of its expected natural gas purchases for this winter at a significantly lower cost than it paid last year, says Accounting and Finance Manager Bob Sittason.
“Our costs for natural gas – whether they are increases or decreases – are passed directly to our ratepayers,” Sittason explains. “We can’t control the costs of water and electricity,” he continues. “Natural gas is the one service we offer where we have some ability to control our costs, and we try to take advantage of cost savings every chance we can.”
Hartselle Utilities could buy natural gas as needed on the open market, Sittason explains, but the costs for that are generally higher and more volatile. Instead, he uses a hedging program to buy gas futures – which specify that Hartselle Utilities will buy a specified amount by a specific date – when prices are favorable.
Sittason looks at a five-year historical usage for the winter months and tries to lock in 80 to 85 percent of that amount if markets are favorable.
“Because of our ability to hedge,” he says, “we’ve been able to lock in 84 percent of our five-year average at a price that is 12.25 percent less than the same futures last year.”
Sittason explains that he uses the five-year historical average for projections for water, sewer and natural gas, because that tends to take out peaks and valleys caused by weather, the economy and other forces affecting usage.
The economy – primarily the lack of industrial demand – and the abundance of natural gas have helped prices, he says. “This is the fourth year in a row that we’ve been able to lock in natural gas cheaper than the prior year.”
In the summer of 2005 much of the country’s natural gas drilling was centered in the Gulf of Mexico. Hurricanes Katrina and Rita destroyed offshore oil and gas platforms and damaged pipelines, causing natural gas prices to skyrocket. Now, Sittason says, new drilling techniques have moved more natural gas production onshore because of a new technique called fracting. These inland resources, explains Sittason, have minimized the impact of hurricanes on natural gas supplies and prices and have increased the nation’s natural gas supply.
“Some industry experts estimate that we have enough inland underground natural gas reserves to meet 100 years worth of demand,” Sittason explains.
Of course, Sittason cautions, that while natural gas prices are expected to be lower, if a customer uses more energy than last year they will not see a decrease in their utility bill.