Winter Heating Costs May Ease On Drop in Natural-Gas Prices

This winter, consumers could see heating bills decrease by as much as 10% over last year, a consumer group says. However, homeowners shouldn't expect huge savings, experts say.
By: Stephanie I. Cohen: The Wall Street Journal Online
The recent drop seen in natural gas prices is likely to help soften consumer heating bills this winter, the American Gas Association said at a briefing.

The group said consumers may see a drop of as much as 10% compared with last year's bills, but officials also warned that consumers heating with natural gas shouldn't expect a sharp decrease in their utility bills.

Consumers have faced a steady increase in winter heating costs in the past five years. The Energy Department is slated to release its annual outlook for residential winter heating bills today.

The impact of natural-gas prices is felt by a large portion of U.S. residents - roughly 68 million American homes, or 52% of U.S. households, heat with natural gas.

Although wholesale natural-gas prices began to drop in September, the price of natural gas throughout the year, not just during the winter months, determines consumer bills, American Gas Association officials said. Utilities typically begin purchasing and stockpiling a significant portion of the natural gas they use to meet customer demand six to 18 months prior to the heating season, according to the group.

"Bills will be lower if the weather is the same as last year but weather is never the same," said Paul Wilkinson, vice president for policy analysis at the American Gas Association. "We've been on a price roller coaster for six years now," he said.

But officials for the group feel confident consumers won't see the sharp price increases of recent years thanks to natural-gas spot market prices in the first nine months of 2006 and the fact that natural gas in storage is at a record high.

During the first three months of this year spot prices were significantly higher than for the year-earlier period. But from April to June prices were about the same as the prior year and for the most recent three months prices have been significantly lower than the year-ago period, the group said.

While customers are also likely to benefit from the lack of hurricanes in the oil-producing regions of the U.S. this year, a cold snap during the winter that leads to higher demand is still the primary driver in determining winter heating bills during the heating season.

"This year, the industry has repaired much of the damage to its infrastructure and wholesale prices are lower, but the weather is a wild card," the American Gas Association said.

Natural-gas utilities don't make a penny more in profit if the price of natural gas rises but they can typically pass the increase in fuel prices along to consumers.