The Energy Information Administration’s (EIA) storage report this Thursday probably will set an all-time record for stored gas prior to the start of a winter heating season, an American Gas Association (AGA) official said Monday.

The last agency storage report, issued on Oct. 6 for the week ended Sept. 29, pegged storage at 3,327 Bcf, which tied the record set in Nov. 5, 2004, but “it will break the all-time high this week,” said Paul Wilkinson, AGA’s vice president for policy analysis. He noted that storage levels on Sept. 29 were 12% higher than the five-year average.

As a result of storage being close to full, “some of the higher-cost production has come offline. I think that’s a very short-term phenomena and it’s going to change around,” he told reporters during AGA’s winter outlook briefing in Washington, DC. “Storage is very full right now. Storage will not be necessarily full six weeks from now or eight weeks.”

In addition to the bulging storage, “production is up a little bit this year,” and “we haven’t seen any hurricanes,” Wilkinson said. As a result, spot gas prices have dropped in recent weeks, and consumers can expect somewhat lower heating bills this winter for the first time in five years. The winter heating bill for the typical household last year was $867, double that of $465 for the 2001-2002 heating season.

He cautioned consumers that while their winter heating bills will be lower this year, they will not necessarily reflect the steep drop in natural gas prices that has been seen over the past couple of weeks. This, he explained, is due to the fact that utilities purchased gas for this winter throughout the entire year — when prices were either higher or equal to last year.

This month, prices are “about one-third of what they were last year… But this does not mean that the cost of gas to [the] consumer, or the consumer bill, will be one-third of what it was last year,” Wilkinson noted. “We think it’s going to be lower, but not that much lower. It depends on when you’re buying gas throughout the year and how you bought that gas throughout the year,” he noted.

“You cannot automatically assume that the decline [in gas prices] that we’ve seen over the past couple of weeks would be reflected in the bill in its entirety… All gas that is delivered to customers will not be $4 gas,” Wilkinson said.

Utilities hedged their gas purchases. Some locked in prices on as much as 50% of their supply to protect customers from high gas prices in the winter months, said Roger Cooper, AGA’s executive vice president for policy and planning. While hedging is good news in a rising price market, “the bad news in a falling market, as we see here, is you’re probably going to have some of that more expensive gas in your portfolio going into this winter,” he noted.

The wildcard this winter will be the weather, as always. “We’d like to see the weather have less [of] an impact on the market,” Wilkinson said. But he noted that can only be accomplished by increasing supply or decreasing demand.

As for legislation influencing the energy market, AGA President David Parker said he believes the odds would be better for lawmakers to reach a compromise during the lame-duck session on opening up more land offshore for oil and gas drilling if the Democrats could capture control of the House of Representatives in the November elections. If that should happen, “Republicans, I think, would say to themselves ‘OK, we would really like to have at least in our legacy an energy bill that would open up the OCS'” before the Democrats take over the House, he noted.

Under this scenario, “the House members who now would be losing leadership opportunities in the next Congress would basically concede to the Senate bill that has been passed in a bipartisan way,” Parker said. “But if the Republicans retain control, they may be emboldened [not to compromise] because the House Republicans do not feel the Senate bill does very much outside of expediting a 181 lease sale” in the eastern Gulf of Mexico.

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