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Pacific Northwest Consumers Benefit from Wide Price Spread to Henry Hub

Utilities in the Pacific Northwest appear likely to largely avoid the significant gas price increases that will be seen in the Midwest and eastern United States this winter because of different supply sources. The Northwest Gas Association (NGA) said Tuesday that utility customers can expect much smaller winter price increases than what consumers will be seeing in other regions that are more closely tied to damaged supply infrastructure in the Gulf of Mexico and Gulf Coast.

"Consumers around the Pacific Northwest will not experience the 50-70% increases in their gas bills this winter that you hear about elsewhere," said Dan Kirschner, executive director of the NGA, which represents natural gas utilities and transmission companies in the region. "The commodity cost adjustments in this region, ranging from 10% to 25%, do not even begin to approach the stratospheric increases faced by consumers in some other parts of the country."

He noted that gas utilities in the region, which serve more than two million customers, lined up most of their winter supply before the Gulf hurricanes even arrived, putting some of it in storage.

Spot prices on Northwest Pipeline at the Sumas, WA, Canadian import point averaged about 31 cents less than wholesale gas prices at the Henry Hub for the years 2000-2004 (bidweek index). However, that spread shot to minus $2.40 since Aug. 1 of this year (daily index). Sumas prices averaged about $5.95 over the first seven months of 2005 but since Aug. 1 rocketed to an average of about $9.24. Meanwhile, Henry Hub daily spot prices averaged $6.83 over the first seven months of 2005 but then soared to an average of $11.44 since Aug. 1, according to NGI's Daily Gas Price Index.

"Historically we've traded at a bit of a discount from the Henry Hub here in the Northwest, through the Rockies and in Canada, but with the disruptions in the Gulf that differential has really increased," Kirschner noted. "Because we're not directly supplied by the gas that's produced in the Gulf of Mexico, we're not experiencing the same level of price volatility that those regions which are directly supplied by the Gulf are experiencing. But, nonetheless, we have seen an increase right along-side others; it's just been much less."

The Pacific Northwest region is supplied with natural gas produced in Canada (Alberta, British Columbia) and the U.S. Rocky Mountains. As a result Northwest consumers don't have to worry about winter supply. "As a result, we will not experience the full brunt of supply disruptions in the Gulf of Mexico," Kirschner said.

However, he noted that gas users in the region are not immune to the effects of a tight balance between growing demand and available supply across North America, which has caused the average wholesale price for natural gas to increase every year since 2002.

Kirschner added that it is too early to project what effect this year's supply disruptions will have on future winter heating bills. "From future weather conditions to how quickly production in the Gulf of Mexico is restored, there are just too many variables to consider." He suggested that Northwest gas consumers take advantage of a variety of resources to help manage winter energy costs. For example, utilities offer monthly budget payment plans and some provide rebates for weatherization or energy efficiency measures.

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