FREQUENTLY ASKED QUESTIONS
Natural Gas Supply & Prices
NATURAL GAS: AMERICA’S MOST POPULAR HOME-HEATING FUEL
Q: How many homes are heated with natural gas?
A: Natural gas is America’s most popular home-heating fuel – heating more households than all other energy forms combined. In all, 52 percent of all heated U.S. households have natural gas heat. Of the remainder, 31 percent heat with electricity, 9 percent use fuel oil, 6 percent use propane and 2 percent use wood, kerosene or other fuels.
WINTER OUTLOOK
Q: What will it cost me to heat my home this winter?
A: Natural gas customers may face significantly higher energy bills this winter – especially if winter weather is colder than it was last year - due in part to the impact of Hurricane Katrina & Hurricane Rita on natural gas production facilities in the Gulf of Mexico. The Department of Energy (DOE) is predicting that national average home heating costs will rise at least 20% or higher for all consumers, regardless of their fuel source.
WHY IS THIS HAPPENING?
Q: The nation’s 68 million natural gas customers have ridden a roller coaster of price swings in recent years. What’s happening?
A: Natural gas is increasingly popular for use by homeowners, schools, businesses, factories and electric power-generation plants because it is efficient, clean, and reliable. However, natural gas production has struggled to keep pace with demand. As a result, the market price of natural gas reflects an extremely tight balance between natural gas supply and demand.
The wholesale price of natural gas was relatively stable during the 1990s because natural gas supplies were in balance with demand. Since 2000, however, wholesale natural gas prices have risen due to a number of factors, according to the U.S. Energy Information Administration. Factors that have resulted in higher natural gas prices include increased use of natural gas to generate electricity, especially during this summer’s warmer-than-normal weather, disruptions to natural gas production caused by Hurricane Katrina and Rita and public policies that have made it increasingly difficult for energy producers to keep up with consumer demand.
These increases reflect only the rise of wholesale fuel prices, which are passed on to consumers, not the total cost. Our rates have to account for increases in the market price of the natural gas we deliver to your home (or business).
In recent years, natural gas prices have trended upward due primarily to increased demand for natural gas to fuel the growing number of gas-fired electric generation plants across the nation. Due to environmental restrictions and quick construction turnaround, power generators have turned to new plants fueled by natural gas to meet the growing economy’s need for more and more electricity.
Natural gas prices, which traditionally dropped in the summer months due to lower demand, now creep upward as demand for electricity rises in summer months. Utilities filling up summer storage are now paying higher summer natural gas costs for gas stores they will tap into for a portion of their winter heating season needs. Those added costs will also be passed on to consumers.
Compounding this situation is an active hurricane season impacting off-shore natural gas production, further reducing supply, while demand steadily climbs in the cooler autumn months. Unfortunately our rates must take this into account and will reflect the higher wholesale price component we must pay for the commodity.
Q: What goes into determining my gas rate?
The natural gas rate local customers pay is made up of three components:
1) the cost of the natural gas commodity itself,
2) the cost to transport the gas from where it is produced (primarily from the Gulf of Mexico, Texas and Louisiana) to the city utility, and
3) the cost to transport the gas from the citygate to the customer’s home.
The cost to transport the gas to the home is a regulated (by local government), fixed cost based on consumption. The cost to transport the gas interstate to the city is also a regulated (by the Federal Energy Regulatory Commission) fixed cost; however, the third component, the natural gas commodity price, fluctuates with the market as it reacts to weather and supply and demand issues. It is this component, which can swing wildly, that is going up and resulting in the anticipated higher winter heating bills.
WEATHER IS THE BIGGEST VARIABLE IN NATURAL GAS BILLS
Q: What impact does weather have on natural gas prices?
A: Weather is often the biggest factor in how much residential customers pay for natural gas during the winter. Natural gas prices remain quite sensitive to weather, for three main reasons:
(1) Heating demand: The weather is a major factor in how much energy people use to heat their homes. If it’s colder, people tend to use more energy. So even if the wholesale price of energy stays the same from one winter to the next, consumers will receive higher bills if they consume more energy than they did the year before.
(2) Cooling demand: An increasing amount of natural gas is being used to generate electricity. Many of the newer “peaker” power plants that generate extra electricity during periods of peak demand – such as during summer heat waves -- run on natural gas.
(3) Natural gas production: As we saw during Hurricanes Katrina and Rita, major weather events can disrupt natural gas production in the Gulf of Mexico. Initially, Hurricane Katrina reduced natural gas supplies by an estimated 8.8 billion cubic feet per day.
PRICE VOLATILITY
Q: What steps are we taking to manage natural gas price volatility?
A: We want what our customers want: an ample supply of natural gas at affordable prices. And consumers love natural gas – but they do not like surprises. So natural gas utilities take a number of actions to stabilize natural gas prices and help consumers deal with fluctuations in their energy bills:
- Membership in MGAG – As a Member of the Municipal Gas Authority of Georgia, one of more than 70 Municipally-owned and operated systems in the country, we are actively taking steps to reduce the impact of wholesale natural gas prices on consumers. The Gas Authority aggregates the natural gas supply needs of its 73 Member systems to negotiate better volume pricing through greater economies of scale.
- Billing plans (if applicable)– We offer balanced-billing plans annually in June that allow customers to spread their natural gas costs over many months, which makes it easier for people to handle winter heating bills. Consumers may pay ahead during warmer months to help ease the burden of higher winter gas bills. Also, pick up a copy of conservation tips that will help with savings.
ECONOMIC IMPACT
Q: What is the impact of natural gas price fluctuations on the U.S. economy?
A: Energy is the lifeblood of our economy, and natural gas meets one-fourth of the United States’ total energy needs. Natural gas is the backbone of American manufacturing, used to make steel, glass, chemicals, textiles, automobiles, food and many other products. Higher natural gas prices put America at a competitive disadvantage, since natural gas costs less in many countries.
PRODUCTION TRENDS
Q: Why is it so hard for natural gas producers to keep up with demand?
A: The thousands of companies that produce natural gas in the U.S. face some stiff challenges:
- Many wells that have produced abundant natural gas for years are becoming depleted. The number of producing gas wells has tripled since 1971 (from approximately 100,000 to more than 300,000) but production has declined – a clear indication that many existing natural gas basins are maturing.
- It is sometimes difficult and more costly to pull natural gas from mature producing areas. That’s why it is important for producers to be able to move to fresh supply areas, and use the best technologies to find and produce more natural gas.
- Even when producers hold valid leases, they often face months of delays and red tape when getting federal or states permits to start working on bringing energy supplies to consumers.
