Hot weather outlook again boosts natural gas

[July 31, 2012]  NEW YORK (AP) -- As the temperature keeps rising, so does the price of natural gas.

Natural gas futures in New York have surged 69 percent since hitting a 10-year low this spring. Power plants are burning more natural gas for electricity as homes and businesses crank up the air conditioning. And natural gas companies are finally cutting back after a production boom that pushed supplies this winter to the highest level on record.

The price jumped another 6.6 percent Monday after forecasters predicted an especially toasty August, with unseasonably warm temperatures throughout the Midwest. Natural gas ended the day at $3.214 per 1,000 cubic feet, a high for the year.

"As long as we see strong cooling demand, prices are going to go higher," said Gene McGillian, a broker and analyst at Tradition Energy.

Still, natural gas is about 35 percent cheaper than at this time last year. And the recent jump in prices probably won't impact utility bills.

Electricity rates are shielded from price spikes in a couple of ways: Utilities lock in gas prices for years at a time to protect themselves from quick shifts in price. And in many states, rates are set by regulators every year or two.

The rise in natural gas has other impacts, however.

As it gets more expensive, utilities will likely burn more coal, independent petroleum analyst Stephen Schork said. Schork noted that natural gas was cheaper than coal from February to May, making it the preferred fuel source for many utilities.

"This is no longer the case," Schork said. Coal is now cheaper than natural gas.

Natural gas prices have been climbing as temperatures rise. This year saw the second-warmest April through June period on record in the U.S. Many utilities burn natural gas to generate electricity, and electricity demand jumps during a heat wave as power customers run their air conditioners more often.

Meanwhile, natural gas producers in the U.S. have been shutting down natural gas drilling operations as they focus on more profitable oil wells. The number of natural gas rigs has been declining every month since October, and production has been falling this year.

In other futures trading, U.S. crude prices fell by 35 cents to $89.78 per barrel in New York. Brent crude, which sets the price for imported oil, lost 27 cents to end at $106.20 per barrel in London. Heating oil lost 1.04 cents to end at $2.8791 per gallon while wholesale gasoline added 4.9 cents to finish at $2.9368 per gallon.

Retail gasoline prices were flat over the weekend at $3.486 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is about 45 cents cheaper than its peak price in April. It's also 22.4 cents cheaper than it was a year ago.

[Associated Press; By CHRIS KAHN]

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