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In the Forecast: Power of Choice For Natural Gas

How much you're paying for gas is shown on your monthly bill, but most people don't seem to watch those prices as carefully as they do when they fill up their cars with gasoline.

In fact, as the chart above right shows, natural gas prices are as volatile as gasoline prices. Like prices at the pump, they have been steadily moving up. Last month, Washington Gas was charging its District customers 92.7 cents a therm for their gas -- 22 percent more than a year earlier, when it cost a little more than 76 cents.

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Seasonal swings occur every year because -- water heaters, stoves and grills aside -- consumers use most of their natural gas for heating; cold weather always pushes up the demand and, with it, the price.

"Shorter term price trends are dictated by weather," said Julie Hilt, an energy market strategist in Medley Global Advisors' New York office. Last week, for example, slightly warmer than normal weather across much of the nation pushed prices down a bit.

To a large extent, a consumer's decision on whether to lock in natural gas prices is a bet on the long-term weather forecast, Hilt said. "If you think we're going to have a warm winter and a cool summer, you don't want to lock in now."

This winter, the seasonal surge in gas prices was bigger than usual. Suppliers paid more last summer to refill storage for the 2004-05 winter heating season. Then Hurricane Ivan shut down a lot of Gulf of Mexico production and pushed prices higher.

With wild cards like hurricanes in the game, predicting prices gets even more difficult.

And then there are long-term trends that shape the market. The amount of natural gas burned to generate electricity has been growing for a decade because gas generators were cheap to build and easy on the environment. They also once were cheap to operate, but that has changed as gas prices have risen.

Government policies also have to be considered. On Jan. 24, the Senate Energy and Natural Resources Committee hosted a conference on how to increase gas supplies, such as opening new areas to drill and building terminals to import liquefied natural gas.

There are so many moving parts in the mechanisms that influence natural gas prices that an industry of "energy risk management" experts has sprung up help businesses deal with the issue.

Those consultants provide some reassuring advice for consumers who want to throw up their hands in frustration when considering whether a long-term contract for natural gas is a good deal.

"It actually doesn't have anything to do with price," said George Beranek, global gas group manager at PFC Energy, a Washington advisory firm. "The question is, 'Do you want to have predictable payments or not?' "

"Do you want to accept the possibility that gas prices next winter will be twice what they are, or do you want to hedge against it?"

As you might expect, energy experts get asked by everyone, including their families, how to manage their gas bills. Beranek said he advised his father to avoid the risk of higher prices by signing a long-term contract. Hilt told her sister, who uses propane, to buy early in the season -- before prices go up -- and to buy as much as she could at the pre-season price.

Big gas users, such as factories, offices and apartment buildings, "for the most part are buying under fixed-rate contracts," said Harry A. Warren Jr., president of Washington Gas Energy Services. Among those cost-conscious customers, he said, "there isn't a lot of business being conducted with people buying at a variable price every month."

When customers sign long-term, fixed-price contracts, WGES turns around and buys gas in the futures market, locking in its cost. "We hedge that very carefully," Warren said.

"Predicting the future of energy prices is very, very difficult," he said. "We don't really know what the price is going to be, but we are fairly certain the price will change."

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