Warm weather sends natural gas prices tumbling

Mild temperatures have cooled demand for natural gas, sending the price to its lowest level since 1999. That should help forecasts for lower winter heating bills come true — and probably exceed the average 10 percent expected savings.

Natural gas is used to heat more than half of U.S. households, according to the American Petroleum Institute. But with unseasonably warm temperatures, there’s less demand for it.

Temperatures in many parts of the country have been as much as 25 degrees above normal in the past five days, thanks to a weather pattern known as El Nino, according to AccuWeather. The weather forecasting company expects the mild weather to continue next week, with temperatures expected to be 20 to 30 degrees above normal.

Besides warm weather, an oversupply of natural gas is pushing prices down. Raymond James analysts said last week in a note to clients that they expect natural gas prices to remain “depressed” into next year because of the oversupply.

“The weather situation is just incredibly bearish and it’s not going to disappear,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “You’re not going to see a big storage draw; you’re not going to get a lot of demand.”

U.S. government analysts are predicting a 10 percent drop in household gas bills from last winter to this winter, but the savings could be bigger and last longer as temperatures surpass even the warmest forecasts.

Kansas City area gas utilities back in October expected similar savings for their customers, and the recent trends have done nothing to dim that.

Dawn Ewing, manager of communications at Kansas Gas Service, said the utility now is expecting 17 percent average savings from last winter, rather than 10 percent, for its customers. The average December-through-March bills last winter for a household totaled $515, so this winter’s bills could be more than $85 lower.

Kansas Gas Service has 135,000 customers in the Kansas City area.

Jim Bartling, a spokesman for Atmos Energy, agreed that low gas prices are good news for his utility’s 90,000 customers in Johnson, Wyandotte, Miami and Douglas counties.

“With the warmer weather and ample supplies in storage, we expect prices to stay down,” Bartling said.

It can take time for dropping wellhead prices to affect customer bills because gas utilities lock in prices on some of their gas in advance of winter. Other costs such as transportation and storage also go into home heating bills. But low wholesale gas costs eventually ripple through.

What’s good for consumers, though, is hammering stock and bond prices of energy companies already crippled by a broad decline in commodities.

In Tuesday trading, gas futures for January delivery fell 7.2 cents, or 3.8 percent, to $1.822 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since March 24, 1999. Futures are down 37 percent this year, heading for the biggest annual decline since 2006.

This story was originally published December 15, 2015 at 5:32 PM with the headline "Warm weather sends natural gas prices tumbling."