Natural-gas prices in the West have dropped sensationally in the past week to their lowest level in more than three years after pipeline repairs left the region awash in gas.
Yet consumers may not feel the full benefit of the ultra-low prices because they won’t last for long, analysts said.
The average price for Colorado natural gas plunged last week from $4.15 per thousand cubic feet to $1.79 – a precipitous 57 percent drop marking one of the largest one-week declines in years. The price gained a little ground Monday to close at $1.99.
“The bottom line is that gas prices are extremely volatile and highly regional,” said Jonathan Alegranti, a senior financial analyst with Denver-based PRB Gas Transportation Co. “But (the big price drop) is a temporary event.”
Natural-gas prices, nationally and regionally, have been falling since reaching record highs last December, brought down by slack demand and ample supplies. But the regional price drop accelerated steeply last week after maintenance work on a major pipeline reduced the ability to ship Rocky Mountain gas to customers outside of the region.
“We’ve got a pipeline bottleneck,” said Mike Farina, director of North American natural gas for Cambridge Energy Research Associates. “As a result, Rockies gas is having to discount its price to find buyers in other markets.”
He said that a sustained price drop would cause gas producers to cut back on drilling and production, but the prices are expected to recover as temperatures cool and gas use picks up.
Xcel Energy issued a forecast last week that falling natural-gas prices are expected to bring typical home heating bills down to $135 in December compared with $157 in December 2005.
The forecast was based on projected gas prices of about $7 per unit for December delivery. Analysts said it is virtually certain that the past week’s regional prices of below $2 won’t hold through the rest of the fall and winter.
Xcel and other utilities typically store natural gas in underground caverns during the spring and fall when home heating demands are low and air conditioners aren’t using gas-fired electricity.
But Xcel lost one of its largest storage facilities in 2001 when it closed the Leyden unit in Jefferson County.
Xcel now relies mostly on other companies’ storage facilities and some of its own storage for a total capacity of 29 billion cubic feet – a 17-day supply for Xcel during the coldest days of the winter.
After the Feb. 18 power outage that left 325,000 Xcel customers without power, the utility said it would study adding more storage to prevent shortfalls in gas-fired power. Results of the study aren’t complete, an Xcel spokesman said Monday.
The drop in natural-gas prices from record highs of $15.38 per thousand cubic feet in December is “a textbook case of market prices at work,” said Marc Smith, executive director of the Independent Petroleum Association of Mountain States.
“Our industry has responded to high prices by drilling more wells and increasing production,” he said. “That has caused prices to drop.”
Staff writer Steve Raabe can be reached at 303-954-1948 or sraabe@denverpost.com.
