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Marketplace

Natural gas bills are up and not just because of cold

David Weinberg Feb 25, 2014
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The great Polar Vortex will descend on the Midwest and the Northeast again this week. Also descending on those regions? Last month’s heating bill.

For lots of people it’s not going to be pretty. Some bills are expected to top $400. There’s the obvious reason: People burned more gas to stay warm. But there is another reason: Natural gas prices jumped, as much as 2,000 percent in some places. What happened to the natural gas boom, and the promise of cheap, abundant domestic energy?

It’s true, the natural gas industry has delivered on its promise of abundant domestic energy. And for the most part it’s also true that national gas prices didn’t change much during the recent cold snap. They hovered around $5 to $6 per million British Thermal Units (BTU).

But, says Severin Borenstein, co-director of the Energy Institute at the Hass School of Business at Berkeley: “We’ve seen prices in the Northeast as high as a $100 per million BTU.”

The reason for that crazy 2,000 percent jump is that even though there is lots of natural gas, there isn’t the infrastructure to move it quickly enough when demand spikes.

“Because the pipeline capacity to get it into the Northeast isn’t that large,” Borenstein says. “Likewise, that can happen in the Midwest.”

But even with improved pipeline capacity, natural gas prices are still susceptible to price spikes.

“The reality is natural gas is expensive to store,” says Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations. And when large quantities of fuel can’t be stored, it’s difficult to smooth out prices over a long period of time.

Over the last few months, regional prices have spiked, but the national price of gas is also up over last year — two-thirds higher.

“But the level we’ve reached,” says Levi, “is still lower than what we would have had without this natural gas boom. It’s still far lower than what people pay in Europe, it’s extraordinarily low compared to what people are paying in Asia.”

And he expects prices to moderate in the coming months.

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