Natural gas falls to lowest price in a decade

01 11, 2012 by Associated Press

Natural gas is cheaper this winter than it's been in a decade.

Prices have dropped by more than 10 percent in the past week, including a plunge of almost 6 percent on Wednesday, as mild temperatures cut into heating demand and a production boom pumps up supplies.

Homeowners should eventually benefit from lower heating and electric bills. "There's just too much gas out there, and there's no evidence that people are shutting in gas production yet to compensate," said Ron Denhardt, an analyst with Strategic Energy & Economic Research.

Natural gas demand usually soars in the winter as homeowners and businesses crank up the heat. But in many parts of the U.S., thermostats haven't been turned up as much this year.

The winter of 2012 has yet to pack much punch, with average temperatures well above normal. December was particularly warm in the Northeast and upper Midwest, where homeowners typically face frigid weather and high winter heating bills. In the Northeast, there have been only four warmer Decembers in the last 117 years, according to the National Weather Service. Long-range forecasts show above-average temperatures continuing over the next few weeks.

Natural gas supplies were already above the five-year average at the start of the year, and that's expected to continue. Analysts expect the Energy Department to report on Thursday that supplies dropped only slightly last week, according to Platts, the energy-information arm of McGraw-Hill Cos.

The natural gas futures contract fell 17 cents to end the day at $2.77 per 1,000 cubic feet. So far in January, natural gas is about 34 percent lower than a year ago. It hasn't been this cheap at this time of year since 2002.

Shares of natural gas producers fell as well on Wednesday as gas prices declined. Range Resources Corp. stock dropped by 5.3 percent, while EQT Corp. shares fell by 4.8 percent and Chesapeake Energy Corp. shares were down 2.8 percent.

Cheaper gas prices should lower average heating bills this winter to about $700 per household, according to Mark Wolfe, Executive Director of the National Energy Assistance Director's Association. That's a 3 percent decline from last year and the fourth consecutive year of declines. By comparison, heating oil bills have risen 8 percent this year.

"If you are using natural gas your situation is getting steadily better," Wolfe said. "If you are using heating oil, your situation is getting steadily worse."

Just over half of U.S. households heat with natural gas. Their bills will likely shrink further in the coming months. Because of the way utilities are regulated and buy natural gas, it can take a year before the full effect of a change in natural gas prices can reach a customer's bill.

Some utilities use natural gas to run generators that produce electricity, so electric bills could also come down for some consumers.

In other energy trading, oil prices dropped Wednesday, as weak U.S. energy demand pushed petroleum supplies sharply higher.

Benchmark crude fell by $1.37 to finish at $100.87 per barrel in New York. Brent crude, which is used to price foreign oil varieties that are imported by U.S. refineries, fell by $1.04 to end at $112.24 per barrel in London.

The Energy Information Administration's weekly report on petroleum supplies showed gasoline demand fell by 4.8 percent last week from a year ago, while demand for all petroleum products dropped by 6.5 percent.

As consumers and businesses cut back, producers put more into storage than analysts expected. Oil supplies rose by 5 million barrels last week while gasoline supplies grew by 3.6 million barrels. Distillate supplies — including diesel and heating oil — increased by 4 million barrels. Analysts had expected oil supplies to shrink by a million barrels last week, with gasoline and distillate supplies rising by 1.75 million and 1.35 million barrels, respectively.

Oil prices began falling after Germany said its economy contracted in the final three months of 2011.That raised concerns about the rest of Europe's economy. Germany, the eurozone's strongest member, is expected to prop up its neighbors as they work to overcome massive government debts. If the region slides into recession, oil demand will likely decline.

At the pump, U.S. gasoline prices were unchanged at a national average of $3.37 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is about 10 cents higher than a month ago and 28 cents more than a year ago.

Heating oil lost 4 cents to finish at $3.06 per gallon and gasoline futures fell 1 cent to end at $2.76 per gallon.