Natural gas prices surge, meaning higher heating bills likely coming for customers

People using natural gas to heat their homes should brace for higher prices this winter. Wholesale prices of the fuel have nearly doubled from a year ago for reasons including the pandemic, foreign sales and fallout from Hurricane Ida.

The effects from that perfect storm might begin as soon as this weekend.

Pittsburgh-based Peoples Natural Gas Co. and Columbia Gas of Pennsylvania, based in Canonsburg, both are expected Friday to file with the state Public Utility Commission for price increases to recover the increased cost they have paid for fuel over the past four months, said Christine Hoover, the interim acting consumer advocate for Pennsylvania.

The anticipated increase in costs would be effective Saturday.

Gas companies may repeat the process in January to recover higher costs they incur over the next four months, Hoover said.

The utilities seek to offset any undercollection or overcollection of gas costs, which can be adjusted quarterly, up or down, said Nils Hagen-Frederiksen, a PUC spokesman.

Peoples Natural Gas serves about 740,000 customers in Western Pennsylvania, West Virginia and Kentucky. Its gas recovery charges rose in July to $3.04 per thousand cubic feet, or mcf, the standard natural gas measurement used in the United States. That was about $1 higher than the previous charge.

Columbia Gas, which serves about 440,000 customers in Pennsylvania, did not change its purchased gas cost for the past two quarters, according to PUC filings.

The pain likely will be felt across the state. About half of Pennsylvania households — as well as those across the U.S. — use natural gas as the primary fuel to heat their homes and water, according to the U.S. Energy Information Administration. Natural gas also is a leading fuel source for plants that generate energy, accounting for 40% of the electricity flowing through the U.S. power grid, the EIA reports.

The Henry Hub price for natural gas — used for natural gas futures contracts traded on the New York Mercantile Exchange — is running above $5 per million BTU (British Thermal Unit) heading into the winter. The market closed Thursday with the price of natural gas at $5.82 per million BTU on the Nymex.

The price was $2.58 per million BTU at the end of 2020, said Richard M. Redash, head of global gas planning at S&P Global Platts, an energy research firm. Prices have not been this high since the winter of 2013-14, Redash said.

He attributes it to a combination of problems that come at the worst time.

“It’s a global energy market,” Redash said, meaning factors outside the United States play a role.

Liquid natural gas, or LNG, is a hot commodity coveted by global energy users. U.S.-produced LNG can be shipped overseas and fetches a much higher price — around $20 per million BTU — than if it were used domestically, Redash said.

“We’ve had a dramatic increase in LNG exports since July 2020,” he said. Those mainly have gone to Asia and Europe.

Domestic exports of LNG are up nearly 50% in the past year, the EIA reports.

When natural gas prices fell to around $1.50 per million BTU in the midst of the pandemic restrictions on the economy, “gas drilling activity steadily declined” and wells were shut down, while others were not completed, Redash said.

Domestic natural gas inventories also have not been refilled to normal seasonal levels, Redash said.

“It’s stoking fears about the adequacy of supplies when we get into the peak heating season,” he said.

Pennsylvania’s 49 underground gas storage sites — the most for any state — are key to helping meet heating demand during winter, the EIA said.

The rebound in the economy from covid restrictions, as industries use more natural gas in resuming production, was another factor pushing prices up.

The EIA also blamed the rise in prices — in part — to Hurricane Ida, which shut down gas production along the Gulf Coast in early September.