What natural gas supplies mean for your winter heating bill

Gas meter
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The ongoing U.S. energy boom may be driving gasoline prices lower, but homeowners who heat with natural gas may be in for another winter of sticker shock.

"It is now looking almost certain that stocks of natural gas in the U.S. will be significantly lower than the five-year average" when temperatures begin falling in November," said Tom Pugh, commodities economist for Capital Economics.

"Another cold winter, combined with lower stocks than last year, could lead to even higher price spikes than last year."

Thanks to big surges in seasonal demand, natural gas producers are busy this time of year building up supplies. But despite record production, natural gas storage levels are still below their five-year range heading into the winter heating season. The latest data from the Energy Department shows that producers are playing catch-up, with storage levels more than 10 percent lower than last year's levels.

That means homeowners who heat with gas could see the same price spikes they saw last winter during cold snaps.

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Despite mild weather so far this fall, the gas storage shortfall already has helped nudge natural gas higher, well before households begin nudging up the thermostat despite mild temperatures.

Last winter's record demand for natural gas included a single day in January that sent demand to nearly double the average daily consumption, according to the American Gas Association. That pushed the average bill for gas customers up 10 percent over the year before—mostly due to gas furnaces working overtime, the AGA said.

But the cold weather demand surge also produced a big jump in prices. The average weekly spot price peaked in February more than 80 percent higher than the end of November.

Roughly two-thirds of U.S. homes used natural gas in 2009, the latest data available, according to the Energy Information Administration. That accounts for about 20 percent of consumption. Power plants use about a third, with commercial and industrial uses taking up the rest.

Thanks to the ongoing booming in new drilling techniques like hydraulic fracturingor "fracking"U.S.natural gas production is expected to continue growing. The EIA forecasts a 5.3 percent increase in 2014 and another 2.1 percent in 2015.

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But even if winters turn mild, some forecasters expect prices to move higher over the next few years as demand continues to rise. Much of that new demand is coming from electric utilities converting older coal-fired power plants to cleaner burning natural gas. Nationwide, gas consumption by electric power producers is up more than 20 percent since 2008

"The upshot is that we continue to expect the price of U.S. natural gas to rise to $6 per million Btus by the end of 2016 compared to around $4 today," said Pugh.

Prices are also expected to vary widely from one part of the country to the next.

As both production and demand has grown, natural gas producers have gradually have increased winter storage capacitymuch of it in underground salt domes and other natural formations that act like giant natural gas containers. Total capacity for winter storage is up 18 percent in the last decade.

But supplies are expected to remain tight in parts of the country where pipeline capacity hasn't kept up with expanded production and storage.

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One of the biggest new gas fieldsthe Marcellus shale in Pennsylvaniaproduces about 13 billion cubic feet of natural gas per dayor about 18 percent of total U.S. supply. Just four years ago, it was producing just the 2 billion cubic feet a day. New pipelines are being built, but it's not clear whether they'll be able to keep up with the rapid growth in demand much of it coming from power companies switching from coal burning plants to cleaning burning natural gas.

Between 2011 and 2017, New England will have cut its electricity generated from coal by more than half, according to data from Reuters.