No Hot Air

(c) 2009 F. Bruce Abel

Heating degree days! The start of heating season is today! Natural gas is king for the residential user. For a comprehensive understanding of the situation, click on the label "heating degree days" on this blog. More, perhaps, than you want, but tremendously instructive. Also click on the following for your information of heating degree days for each day of the month, a schedule that is not now readily available online.

http://2.bp.blogspot.com/_2FY0Ayie_N8/RnE-aRS1kGI/AAAAAAAAAAo/2A4qr-HvgjY/s1600-h/the+block+noaa+norms+300+dpi+clearer+for+each+month+of+the+winter+heating+season+sept+21+2006_Page_1.jpg

The following is also extremely important and is from the blog "No Hot Air," written by someone in England with extremely good insights. If you can get through the translation, the author's predicting absolutely shocklingly low rates "per therm." Which equates to mcf. $2.90 on average (day-ahead prices) during the heating season!

http://www.x-rates.com/d/USD/GBP/graph120.html

[If Duke bought on the spot market this would equate to the cost of gas being slightly more than equal to the cost to deliver -- unheard of! as the cost of gas itself has traditionally been 80%. But Duke does not buy exclusively on the spot market. As far as I can glean so far, what Duke does is a "trade secret" so we won't get the predicted sensationally-low prices this winter, but something pretty good nonetheless. In fact I think the Enquirer had a good story this past weekend, which I will try to find and reproduce. It dealt with northern Kentucky so it won't be what Ohio's would be.]

Here it is and it's pretty good:

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By Mike Boyer • mboyer@enquirer.com • September 28, 2009

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That chill in the air this morning is a sure sign winter is approaching. The good news is the cost of staying warm this winter should be significantly less than last heating season.

The economic recession has weakened industrial demand for oil and natural gas and that, in turn, has sent prices tumbling for most heating fuels.

Natural gas, which heats nearly six out of 10 homes in Cincinnati and Northern Kentucky, has fallen to its lowest level since 2001, the federal Energy Information Administration said earlier this month. At the same time, natural gas in storage is expected to approach a record of more than 3.8 trillion cubic feet by the end of October, the EIA said.

The trend is already evident in residential gas bills of Duke Energy, which has about 500,000 customers in Southwest Ohio and Northern Kentucky.

Duke, whose gas price changes monthly, said typical residential gas bills in October will be about a 25 percent less than a year ago.

For the typical residential Ohio customer using 7,000 cubic feet of gas, the October bill is projected at $75.62, down from $106.50 last October. In Kentucky, the same residential customer is expected to pay $73.13 in October down from $96.56 in October last year.
Spence Faxon, president of Energy Alliances, a Blue Ash-based energy consulting firm, said natural gas for delivery at the end of October is currently running about $3.70 per thousand cubic feet. A year ago the price was more than double that, he said.

A range of factors from the weak economy, the high amount of gas in storage and the fact that the peak of the hurricane season in the Gulf of Mexico is over have combined to keep prices down, he said.

"It should be a lot cheaper to heat your home this winter with natural gas than last year," said Andrew Melnykovych, spokesman for the Kentucky Public Service Commission. The commission won't issue its annual winter heating forecast until the end of October. "The speculative bubble which pushed gas prices to $13 (per thousand cubic feet) last year has burst."

The federal Energy Information Administration won't issue its annual winter fuels outlook, with estimated heating costs until next Tuesday, but the agency says heating costs from natural gas should drop 16 percent nationally this winter.

Electric heating costs are expected to fall one percent, home heating oil costs are projected to increase 1.4 percent nationally, and propane heating costs are expected to fall 12 percent.
"The big driver in winter heating costs is the weather," said the PSC's Melnykovych. "If the winter is really cold, consumers will spend a lot even if unit costs are lower."

The National Weather Service is forecasting this winter will be milder than normal. For the period from October through March, it's forecasting 3,851 heating degree days, a quantitative measure of energy needed for heating. That's below the normal of 3,880 heating degree days for the winter.

Meanwhile, the weak economy could also fuel demand for low-income heating assistance this winter.

Last week, Ohio raised household income guidelines for federal low-income home heating assistance from 175 percent to 200 percent of the federal poverty guideline.
This year Ohio expects to receive about $220 million in federal funds for its Home Energy Assistance Program, about the same as the prior year. Last year, the program served about 393,000 residents up from 387,000 in the prior year. Despite that the Ohio Department of Development, which administers the funds, said it expects to have enough money to meet demand this year.

"What I'm hearing about is middle-class families where somebody has lost a job and they don't have many assets," said John Wolfe, executive director of the Washington-based National Energy Assistance Directors' Association.

Congress appropriated $5.1 billion to the program last winter, up from $2.5 billion the year before. But Congress has yet to approve the fiscal year 2010 appropriations bill. Both the House and Senate versions of the bill keep the funding at its current level.

The Associated Press contributed.
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I would predict the total cost of gas to us this winter of $6.50 per mcf or $.65 per ccf.

Now the No Hot Air Blog:

Sep 29, 2009


October, start of the heating season, the gas year and the traditional time for energy traders to talk up any risk at all. And the traditional start of the time for energy users to act like suckers and buy into energy risk catastrophic scenarios.


Last year some energy buyers who congratulated themselves by not being suckered into £1 a therm fixed price, bought at 65. That ended up being a dumb move. Come January, Russia and Ukraine kicked in and the coldest winter in almost twenty years started. And worst that day ahead index could come up with was 48 pence per therm in January.

This winter, the same old stuff. Buy now and pay the fear premium. Pay on the day, and pay for reality.

Gas traders here and in North America are praying for a cold winter. It still wont' help. 100% storage capacity has never been reached this early in the year. Bulls are also depending on a recovering economy. But a jobless recovery won't be an energy using recovery.

Gas use won't' rise if someone buys a derivative of whatever, or sells someone a PowerPoint presentation. [don't understand this] Gas use needs car factories and steel mills and paper mills and chemical plants and all the associated suppliers. We don't see the demand destruction of last winter being reversed anytime soon, and the refusal of UK domestic suppliers to pass on price drops is short-sighted. The domestic market fell last winter, the first time this previously inelastic sector dropped use. Ripping users off is a great way to push up the next quarter, but not as long term business strategy. Unless of course they are confident that the regulator and whichever government comes in next year, will leave them alone.

People are more aware of alternatives, number one being: turn down the thermostat or switch off the light. High price provide incentives for even lower actual use even when prices do come down.

But the surge in US production, coming to a continent near you sooner than anyone knows, is going to continue. What will happen next spring when storage is still full and even more shale gas hits the market? US production will come across the ocean, along with everyone's spare gas. A mild winter in the Northern Hemisphere could see single figures sometime in Q1 2010. And that's before a single kWh of European shale gas gets produced. Prices may correct themselves, and it would be healthier if they do.


Our guess for average day ahead October 1 to March 31: 19 pence per therm. Almost 50% down on today's fixed price. We'll do another story on April 1. It won't be foolish.
Posted at 09:50 PM in Energy Prices Permalink