Natural Gas Prices Predicted to Cool This Summer

May 31, 2006 — -- After four consecutive summers of increased prices, natural gas customers can finally expect a bit of relief in their wallets this year. However, several factors, including the start of hurricane season and continued high demand, could still drive prices up this summer.

The prediction comes from the annual summer outlook from the Natural Gas Supply Association.

Power plants use natural gas to make energy, which in turn powers air-conditioning units during the summer. Temperature will play a big role in how much those ACs are used and on the prices customers pay.

This summer is predicted to be cooler and milder than last year's, which broke temperature records."Despite forecasts for a somewhat cooler summer this year, projected demand for natural gas is relatively close to what it was last summer," says NGSA chairman Chris Conway. Nationwide, 56 million homes use natural gas, according to the American Gas Association.

"Cooler weather this summer will likely result in lower electricity and, consequently, lower levels of gas-fired generation, leaving room for return of some industrial demand," Conway said. "As a result, natural gas consumption during this summer is anticipated to be only 0.2 percent lower than last year."

Despite the steady demand, some analysts have painted a rosy picture for customers, which comes on the heels of a 15-month low in natural gas prices earlier this month.

Following a warm winter that drastically reduced demand for natural gas for heating, natural gas inventories were bolstered and prices fell almost 60 percent this month from their mid-December high. Many observers anticipate a further swelling of inventories in the months ahead and say prices could fall another 20 percent.

Judging by the rate at which natural gas is currently injected into storage, analysts said there could be more than 3.5 trillion cubic feet of inventory before the start of the next home-heating season, or 6 percent more than last year's record.

"You'll have gas producers chasing customers around," says Dan Lippe, an energy consultant at Houston's Petral Worldwide. "That would be very bearish for gas prices."