The Energy Information Administration (EIA) released a handy newbrochure yesterday for residential customers who are wondering whytheir natural gas bills are expected to soar by 44% this wintercompared to last winter. Gas supply will be adequate to meet demandthis winter, according to EIA, but prices and gas usage are goingto increase substantially.

The brochure attributes the price increase to “a competitivemarket reaction as supply has lagged in its response to a recentsurge in demand.” EIA notes that the average wellhead price for gaswas as low as $0.16 per therm (or $1.69/Mcf) in September 1998, butin September 2000 wellhead prices soared to $0.39 per therm (almost$4/Mcf). Part of the reason for the price increase is a six- to18-month time lag between drilling and production. Althoughexploration and development has increased significantly in the pastyear, the time lag means there will be a delayed supply response tothe high prices.

Meanwhile demand has soared because of new gas-fired powerplants and new home construction. In addition, colder temperaturesthis winter compared to last winter are expected to increase gasuse.

“Gas prices are expected to continue at levels much higher thanlast year through this winter, before coming back down after theheating season,” according to EIA.

The brochure also breaks down the delivered price of gas intothree components: the gas itself (34% of the total cost),transmission and storage (19% of the total) and distribution (47%of the total). EIA notes the largest portion of the delivered priceis the distribution cost because of distribution requires the mostinfrastructure relative to the amount of gas delivered. Of the101.5 million U.S. households, 53% use gas to heat their home. Thehighest concentration of households heating with gas is in theMidwest (17.9 million out of 21.6 million households). EIAestimates that Midwest homeowners will pay about $0.20 more pertherm ($1.97 per Mcf) this winter than last winter.

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