Hurricanes and their potential impact on natural gas supplies and prices are no longer a major concern of gas utilities in the Pacific Northwest, utility officials told a workshop held Tuesday by the Oregon Public Utility Commission (PUC). It is a reflection of the fact that the ramp-up of Rockies and general shale production has made the Gulf of Mexico supplies less critical for their region.
In ending a quick one-hour session, the PUC commissioners commented on how this year’s meeting was “much better than last year,” when the utilities were forecasting 20-40% rate hikes because of the spike in wholesale gas prices that was happening as they were meeting in mid-2008.
Oregon’s major gas distribution utilities told the regulators that retail rates could be lowered 10-20% on Nov. 1 when annual gas cost adjustments are made in their rates. Last November Portland-based Northwest Natural Gas Corp. increased rates 14.3%; Seattle-based Cascade Natural Gas Corp. increased its retail rates 5.4%; and Spokane, WA-based Avista Utilities dropped its rates by 2.9%. “Now all three of our natural gas companies anticipate being able to substantially reduce customer rates,” said PUC Chairman Lee Beyer.
In an annual forecast meeting hosted by the three-member Oregon PUC, an overall picture of flat supply/demand and slumping, although still volatile, wholesale gas prices was echoed by representatives from the Northwest Gas Association and the three utilities, Avista, Cascade and Northwest Natural. All three will file for their November gas rate changes in August.
“The impact of the Gulf of Mexico production just isn’t what it used to be,” said Avista’s Kevin Christie, who is expecting “prices to stay about where they are” overall in the upcoming winter heating season of 2009-10. “Historically, natural gas prices have been affected by hurricanes due to their impact on production, but the Gulf now contributes only 14% of the Lower 48 production, compared to 25% [previously].”
Mark Sellers-Vaughn, the gas supply expert from Cascade Natural Gas, echoed Christie’s thoughts, saying there is “no cause for concern” from hurricanes’ impact on supplies and prices this year. “Current atmospheric models are generally quiet in the Atlantic Basin,” Sellers-Vaughn said.
“Overall, prices are still relatively low compared to last year,” he said. “And at this time hurricane season is not impacting prices in the near term.”
Randy Friedman, gas supply director at Northwest Natural,cautioning that he believes the U.S. gas industry has probably recently experienced a “bottom” in wholesale pricing because of things being shut in and coal plants being shut down and switching over to gas stimulating more demand on the power generation side.
“We are moving back to more long-term contracting because we do think we have hit a bottom, and thus it is a good time to get back into longer-term deals, which we haven’t done for awhile” Friedman said.
Northwest Natural has a weighted average cost of gas (WACOG) that is based on a combination of WACOGs from Alberta, Canada and U.S. Rockies supplies, said Friedman, noting that his utility is currently looking at a WACOG that is declining by about 20 cents/therm, so he is expecting an upcoming retail residential rate decrease of 15-20%. However, he characterized his projections as “very rough,” saying they will change before the utility makes its annual gas cost rate adjustment filing to the PUC in early August.
This projected decrease is in addition to the $32 million decrease that Northwest Natural recently refunded to customers, Friedman said.
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