Low natural gas prices hit home

by Stephen Crane

The price for natural gas has dropped dramatically in recent months and is currently about half of what it was in June of this year. The repercussions of this swing are being felt by the energy companies in Sublette County, and the effect will likely trickle down to local consumers as well.

“This is as much of a challenge for the industry as it is for the consumer. It affects everybody,” said Randy Teeuwen, spokesperson for EnCana energy company. As of Nov. 21, the price of natural gas hovered around $6.50 per million of British thermal units (MMBtu), whereas in late June of this year, the price topped the $13 mark, ultimately reaching $13.69 per MMBtu in early July.

“Pricing is very, very complicated,” said Teeuwen. “It’s related to capacity and pipelines and the amount of gas we’re able to get out of Wyoming.”

Soon after the price of natural gas topped out in July, the Wyoming Public Service Commission (WPSC) predicted that private consumers would see prices increase by as much as 70 percent for the upcoming winter, but the commission’s prediction was unfounded, and as the price rose and then began to fall, that calculation was rescinded.

“We had several people that cancelled based on that report, which was completely false,” said Steven Shute, co-owner of Pinedale Natural Gas Company (PNG), which supplies many local residents with natural gas.

Since the price of natural gas fluctuates on a daily basis, gas companies supplying home energy are confronted with the task of determining gas rates that mirror these changes, while still maintaining consistent costs. Therefore, the price of home heating costs are established every six months or so, and based on future projections and past corrections.

“Over time, we will charge our customers just exactly what it costs us for gas,” said Shute.

PNG, as with other home energy suppliers, determines its gas rate based on past and future prices. The company tries to compensate the customer for price changes in the previous six months, while trying to predict what prices will be in the next six months.

“We made our last adjustment in September, and we’ll make our next adjustment after winter,” said Shute. “You have this continual circling around the target, where we try to hit it on the head, but nobody’s that smart. And after this winter, we’ll have an adjustment that’s either positive or negative that gets us to zero.”

With gas prices currently hovering between six and seven dollars, PNG locked in its winter price at around this six to seven dollar range, which is coupled with a $4.16 transport fee, to total $10.71 MMBtu for the customer. This results in a 15-20 percent increase from last winter, but still well below the predicted 70 percent jump of the WPSC.

This fluctuating price of natural gas not only affects consumers, but also the gas industry developing these fuels. For energy companies out in the gas fields of Sublette County, this drop in gas prices has also had an impact.

“Supplies and storage are pretty much full,” said Teeuwen. “We haven’t started to draw down the storage capacities. When temperatures fall, more gas is consumed, and when more gas is consumed, prices tend to trend upward based on the amount of consumption.

“Given that, we would expect the prices will rise some as the winter progresses as there’s more demand and more people consuming more gas.”

When the price of natural gas is this low, companies are forced to evaluate the cost effectiveness of development rates.

“We are price sensitive,” said Tab McGinley, Land Manager for Ultra Petroleum. “But this field does have a significant advantage over others because we do know that the resource is there. In some basins and some areas, they don’t know if they’re going to find any productive or economic wells.”

For EnCana, the upcoming year could see a slowdown in drilling rates, particularly if the price stays as low as it has been in recent months.

“Price affects us to a great degree,” said Teeuwen. “We anticipate that we will probably not, in 2009, drill as many wells in Jonah as fast as we are now. I don’t want to say it’s certain, but I think that we already see that there’s likely to be some slowdown in the number of wells we drill.”

Experts continue to play the guessing game with gas prices that rise or fall on a daily basis, and the task for gas companies, both producers and suppliers, is a daunting one.

“We’re all kind of riding the same waves…bobbing around in the same ocean,” said Teeuwen.