![]() |
Why Have Natural Gas Prices Risen So Much? |
The average wellhead price
for gas was as low as $0.16 per therm, or $1.69 per thousand cubic feet, in
September 1998. In September 2000 prices soared to $0.39 per therm or
almost $4.00 per thousand cubic feet. This increase reflects a competitive
market reaction as supply has lagged in its response to a recent surge in
demand.
The latest Energy Information Administration assessment, issued
in early December, projected that Americans heating with natural gas would spend
at least $300 more this year on heating costs compared to last year. At
the same time, natural gas prices on the commodities market were reaching $10
per thousand cubic feet, four times the cost of gas last year.
Although gas exploration and development have increased significantly in
the past year, the response to the increased drilling for gas has yet to be
fully reflected in sufficient additional supplies to affect prices. This
is due to the 6 - 18 month lag time between the time of initial drilling and
when additional production is brought to the market.
Natural
gas demand in 2000 has increased because of a number of factors, including the
start of operations at new gas-fired electric-power generators and new home
construction, which tends heavily toward the use of natural gas for heating and
cooking. Natural gas prices are expected to continue at levels much higher
than last year through this winter, before coming back down after the heating
season.