Vol. 20   No. 3
Fall 2015
  • MGE Talks Business
News Briefs

As winter heating season begins, natural gas outlook is promising

As winter heating season begins, natural gas outlook is promising

As winter heating season begins, natural gas outlook is promising

What a difference 10 years can make. In 2005, hurricanes Katrina and Rita pounded the Gulf Coast, impacting production and supply. Natural gas prices skyrocketed.

Since 2005, gas prices came down, spiked again in 2008 and have fallen more than 80% since then. Right now, in 2015, supply remains strong and prices remain low.

"We expect natural gas prices to stay low in the near term, in large part due to supply," explained John Jicha, MGE Director of Energy Supply and Trading. "The main reason supply is so strong is the continued growth in volumes of available shale gas. Since 2005, shale production has grown over 1,000% and it's expected to grow another 44% by 2040."

On a national level, the amount of natural gas in storage, as of late October, is more than 12% higher than it was at this time a year ago and nearly 4% higher than the previous five-year average (2010-2014).

"There is more than enough supply right now to meet the winter demand," Jicha said.

Based on normal weather conditions, natural gas prices are expected to be relatively stable this winter and remain lower compared to recent years due to strong supplies, ample transportation facilities and less demand than last winter. However, natural gas is still a commodity traded on the open market and the price can fluctuate.

"If we have an extended period of extreme cold, like we saw with the polar vortex in early 2014, we would expect to see regional and daily volatility in prices," Jicha added.

In addition to buying extra gas during the summer when it is typically less expensive and putting it into underground storage, MGE also uses a Risk Management Program to buy a portion of its natural gas supplies. Similar to insurance, this provides some protection from the potential extreme price increases during the high demand winter months.

Winter heating forecast

Given normal winter weather and based on MGE's current supply of natural gas, market prices and forecasts, we currently expect winter heating costs to be about 20%-30% lower than last year for the typical residential natural gas customer. However, weather has the potential to change that. A mild winter means we'll likely use less natural gas to heat our homes and our costs will be even lower. A colder than normal winter, however, likely means we'll use more natural gas and our winter heating costs would be higher.

The Farmers Almanac is forecasting a snow filled and frigid winter for Wisconsin. However, the National Weather Service is forecasting warmer than normal temperatures for us this winter, due to what could be one of the strongest El Niño's on record. An El Niño usually produces warmer temperatures and drier conditions than normal in the northern half of the country.

Which forecast is more accurate remains to be seen, but one thing is for sure when it comes to winter in Wisconsin, we'll be ready for whatever comes our way.