Spike in natural gas prices unusual

By Bryan Gentry

Published: June 3, 2008

The price of natural gas zipped upward about 18 percent at the end of May, though the price usually drops in the summer.

Columbia Gas of Virginia, which services the Lynchburg area, raised its prices May 30. The average customer’s bill will go up from $44.19 to $52.34.

The company said the price increase results from market speculation and the increased use of natural gas electric plants.

“It’s one of the highest that we’ve seen since just after the hurricanes Rita and Katrina,” said Bob Innes, spokesman for the Chester-based company. “We are a little bit concerned about it, being that it is a summer month and it is unusual.

“Typically, it goes down because demand is less in the summer.”

Innes said average wholesale natural gas prices have gone up 45 percent in the past year. But Columbia buys the gas from various sources with lower price increases.

Still, the company passes on the wholesale price dollar-for-dollar, so wholesale cost increases land on customers’ bills.

According to the U.S. Energy Information Administration, natural gas prices to consumers have been on the rise since late 2007.

“One of the drivers has been the increase in some market speculation and the run-up in some of the commodities markets,” Innes said.

Innes also said natural gas is being used more for electricity generation, especially in peak power plants that turn on when demand is high.

The increased use of gas for electricity isn’t huge — the Energy Information Administration reports an 8 percent hike from March 2007 to March 2008 — but Innes said that could influence the price increase.

“With the warm weather we’re having in the summer, they’re producing a lot more electricity for air

conditioning,” he said.

Natural gas is not a product of oil, like propane and heating oil, but it is often found along with oil underground.