Nat gas prices may hit you in the electric bill
A surge in natural gas prices is playing out in consumers' utility bills this winter.
Just a year ago, cheap natural gas—which has become an increasingly important source of electric power generation—was helping to contain electricity prices. Now, the U.S. has seen a surge in utility costs, partly because of a prolonged stretch of bone-chilling temperatures that have boosted nat gas demand.
Coinciding with the run-up in natural gas—last week, futures for February delivery topped $5 for the first time since 2010—the Bureau of Labor Statistics reported last week that its electricity price index showed its largest month-to-month increase since 2011.
"The run-up in price can impact fuel costs, and utilities pass fuel costs on to consumers," said Christopher Muir, senior industry analyst at S&P Capital IQ. Given the regulatory and political pressures of hiking rates, utilities only do so "on a periodic basis," he added.
The snow-battered Northeast includes the Marcellus shale region in nearby Pennsylvania, a hotbed of nat gas production. However, New York, New Jersey and New England—areas feeling the pain of surging utility costs—are hamstrung by a lack of infrastructure to deliver it.
Companies want long-term commitments to add to the nearly 3 million existing U.S. energy pipelines, of which 324,000 are earmarked for gas transmission. However, gas companies are reluctant to tie themselves into a costly contract, or be forced to jump through federal, state and local regulatory hurdles.
The Northeast Gas Association cites "substantial growth in natural gas supplies," yet adds that "getting these new supplies to market requires further natural gas pipeline infrastructure investments, which requires incremental contract commitments."
Still, the price surge may spur more production. When nat gas prices cratered below $2 in 2012, producers found it hard to justify hydraulic fracturing—the controversial production method known as "fracking"—for more shale. Currently, the opposite may hold true.
"The people doing fracking said 'this is not economic for us' and they were drilling fewer wells" in 2012, said Steven Nadel, executive director of the American Council for an Energy-Efficient Economy. "Now, drilling is going up again," he added, which eventually will help prices normalize as producers stockpile more gas.
In 2012, the U.S. enjoyed one of the warmest winters on record, a factor that kept nat gas prices low, said Erica Bowman, chief economist for America's Natural Gas Alliance.
"Once you get into mid-March early April, spot prices will really come down," she said. "By October there will be a level of storage that the market will really feel comfortable with."
(Read more: Why regulators go easier on nat gas than pipelines)
Other observers put the nat gas rally in context. U.S. natural gas costs a fraction of what it costs overseas, and is cheap compared with only a few years ago. In spite of a 40 percent surge that took prices above $6 a thousand cubic feet for the first time in four years, natural gas still trades at less than half 2008 levels, when prices topped $13.
Nadel explained that advances in energy efficiency have helped consumers pay less for more power.
Even amid temporary price spikes, shifts to energy-saving appliances have helped drive down electricity prices since 2007, according to data from the Energy Information Administration. The shale boom has helped cut wholesale electricity prices by 50 percent since 2008.
—By CNBC's Javier E. David. Follow him on Twitter @TeflonGeek.