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Cold weather demand pushes natural gas above $5

3 min read

Natural gas prices moved past $5 per million British thermal units on Friday for the first time in almost four years, as a winter chill drove demand for the fuel.

The price of natural gas for next-month delivery last closed above $5 in June 2010, according to data from the U.S. Energy Information Administration. Natural gas prices have been under $4 for most of the last two years.

Natural gas for February delivery closed at $5.18 per million British thermal units in Friday trading on the New York Mercantile Exchange.

The price jump, as much as 20 percent in a week, will offer a boost in revenue for some natural gas producers, but it is not likely to last, said Mark Hanson, an analyst for investment research firm Morningstar.

“As easily as it can go up, it can come right back down,” he said. “If you see three months worth of this, then maybe it’s time to get more excited.”

But even a short-term price spike will raise home heating bills, according to CenterPoint Energy, which delivers natural gas to 1.2 million Houston-area residents.

Natural gas prices dropped to a low of $1.94 in 2012 amid a surge of production and dwindling demand after a warm winter. Barring extreme weather conditions, most analysts believe prices will range between $3.50 and $4.50 for at least 15 years, because gas production can come online quickly if prices rise – boosting supplies and pushing the price back down.

CenterPoint Energy spokeswoman Alicia Dixon said the higher commodity price will raise average February bills by $2 to $2.50 over the previous month for comparable gas use.

Winter gas bills for Houston residents average $55 to $70, Dixon said.

High demand for natural gas has drawn down supplies this winter. Natural gas in underground storage was down 20 percent last week from the same level a year ago, to 2.4 billion cubic feet, according to the U.S. Energy Information Administration. That’s the lowest level at this time of year since 2005, before gas production surged in the shale boom.

Prices may stay around $5 as utilities buy more gas amid high heating and electricity demand that is bringing down supplies, said James Sullivan, senior analyst for Alembic Global Advisors.

At that price producers could start drilling and producing in gas-rich areas that have not been profitable at lower prices, he said.

But he noted that while prices above $5 could prompt more production, it may dampen demand. Some electric power plants are likely to switch to from natural gas to coal, which is a cheaper generation fuel when natural gas approaches $5.

And Hanson said prices would need to remain close to $5 for months before producers started significant new drilling operations.

“A week’s worth of prices in the high $4s or low $5s really isn’t going to inspire a whole lot of people, in my opinion, to go start drilling for gas,” he said. XXX – End of Story<3D

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