ORIGINALLY WRITTEN JERRY ENGLER
With natural gas prices exploding upward in the market, you can expect your gas bill to be 50 percent higher than last year, according to James Bartling, public affairs manager for Greeley Gas Co. at Olathe.
If you also want to understand what’s pushing prices up and what the future might hold, you need to take a look at a gas business governed by free market forces.
This includes everything from New York Mercantile Exchange traders to the company willing to put its money on the line at the drilling rig.
First, rest assured that you probably won’t freeze this winter.
“The utilities fully expect sufficient gas to serve customers’ needs this winter,” Bartling said.
If you are a household customer, you also are protected under regulations mandated by the Kansas Corporation Commission which oversees Greeley and other utility companies.
“It’s structured to take care of small homeowners first,” Bartling said. “If there was a curtailment of gas supplies, it would begin with larger commercial customers first to make sure the supplies were there for homeowners.”
The last time a curtailment occurred was in February 1996, when sub-zero temperatures and high winds caused heavy gas usage, Bartling said. Greeley and other gas companies contract for supplies a month to two months ahead, relying on spot purchases only to fill in during severe conditions.
Bartling noted that this has been a wild year for gas prices with plenty of press coverage that has customers concerned.
“Prices are up drastically from earlier this year,” he said “We’ve seen record high prices with no immediate relief in sight.
“Gas is traded daily on the NYMEX just as it is for other commodities whether they’re soybeans, wheat or gold. Currently daily trade prices are in excess of $6 per MCF (1,000 cubic feet) of gas. The other day it was $6.40. Early this year it was in the $2.20 range.”
Bartling said what drives NYMEX prices up and down is the number of drilling rigs on-site operating, which, in turn, was determined by earlier exploration and a company finding it profitable to operate its rigs.
“The rig counts have been at an all-time low,” Bartling said. “Since gas has been over $4, the rig count has begun to go up. These prices I am quoting are the prices at the wellhead, the spot price.
“The price we pay, the delivered price for gas, is at $5.99. It’s getting close to the spot price.”
That actually is the price that you, the customer, pay for the gas itself. Bartling said utility gas companies aren’t allowed to mark up the price of the gas. They take zero percent profit on gas.
What Greeley is allowed to charge for is delivering the gas to you, the price for having a pipeline, for storing gas, for having compressors running to move gas through lines, for having crews to check lines and homes for leaks and maintenance.
The current price for that is $1.77 per MCF plus taxes, franchises and $5 monthly facilities inspection fees.
He acknowledged that gas prices are driven by demand for all fossil fuels. Rising oil prices usually mean rising gas prices. But that is reflected in using the rig count as an accurate price index, he said.
Greeley’s natural gas is purchased through Dallas, Texas, by Atmos Energy which, as a major national player in the gas market, is able to make economical contracts, Bartling said.
Atmos, which means “gas” in Greek, has 1.1 million customers compared to Greeley’s 210,000 customers, he said.
Greeley stores gas in southeast Kansas rock formations near Fredonia, Liberty and Buffalo.
Bartling said, “Many times we’re able to store gas in old natural gas wells that have been depleted. It’s actually stored in the natural rock formations, not in caves and not in tanks. Sometimes gas is stored in old salt mines, in salt domes. A lot of people see the storage tanks along the highway at St. Louis, Mo., but that type of storage is rare. In Kansas we have a lot of old gas wells.”
Bartling said he often has heard Kansans ask why more of the old gas wells aren’t opened to meet energy needs. He said that’s a matter of pumping costs and technology costs.
“Often compression must be used to draw the gas out of an old well,” he said. “There’s no free flow. When you do that you pull out water and other petroleum compounds. It takes a lot of technology to pull it out, and extract the products. Dehydration is expensive.
“If prices keep going up, maybe more of that will be done. There isn’t an unlimited supply of gas either. Some of these wells have just run out.”
Bartling said one thing in current regulations that illustrates that utilities “don’t make a penny selling the gas itself” is that larger commercial and industrial customers that use sufficient volumes are being allowed to make their own gas purchases from third parties.
“Some school districts have even done this,” he said. “Their gas is piped through our lines, and we charge them just as though it was gas we had purchased on behalf of our other customers.
“The problem with third-party customers is disruption when not everybody is able to get the contract price they thought they could get. To maintain gas flow we have to know the gas is there, so we require them to have a one-year contract for gas. It doesn’t matter to us who they buy their gas from.”
Bartling expected that as oil and gas prices rise, prices for commodities like propane that are extracted from them will go up too.