Natural gas is cheap no more

Once a bargain fuel, it overtook oil for heating, electricity. Now higher bills loom

"This part of the country traditionally made it through the winter by relying on oil to heat homes and generate electricity.

Oil still matters, but today natural gas matters more. In Massachusetts, more homes are heated by gas than by oil. And in New England, natural gas produces more electricity than any other fuel, by a wide margin.

Homeowners switched to gas because it was relatively clean and easy to use. Power producers embraced natural gas because gas-fired power plants could be built quickly and were environmentally friendly.

But natural gas had another advantage: It was cheap. ''In the 1990s, gas was so cheap people just said, 'Why should I use oil?' " said Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Gas is not cheap anymore. The market price of natural gas hit a record high of $14 per million BTUs last week as a result of production lost to hurricanes Katrina and Rita. Prices have more than doubled in the past year, and they are up more than fivefold since the late 1990s, when local utilities decided to build a new generation of gas plants.
The bottom line: New England consumers will see those higher prices reflected in their heating and electric bills.

''Fasten your seat belts: Prices are in the ionosphere," said Richard Levitan, a consultant to the gas industry.

Consumers won't feel the full impact of the rise in natural gas prices because many utilities signed long-term contracts with suppliers that locked in lower prices. Still, state officials estimate that households that use gas will see a 26 percent rise in heating costs this winter; electricity prices may rise a comparable amount. Massachusetts Electric, the state's biggest electric utility, recently requested a 28 percent rate increase that would cost the average homeowner $17.50 a month.

Natural gas isn't necessarily more expensive than oil. Over time, the two fuels track each other closely on an apples-to-apples basis, say energy specialists. But the notion that gas would be a bargain for New England has proved illusory.

For Massachusetts homeowners, the big shift to gas occurred in the 1990s. According to the Census Bureau, in 1990, 38 percent of the state's households heated with gas, compared to 44 percent for heating oil. By 2000, the numbers had essentially reversed. Over the course of the decade the number of households using natural gas rose by 220,000.

Michael Ferrante, who represents the state's fuel oil dealers, says the natural gas industry triumphed with an aggressive and effective marketing campaign. ''They convinced people that we have an older technology and that our fuel is not as clean," said Ferrante, president of the Massachusetts Oilheat Council.

Hermina Svoboda was persuaded. The Lynn homeowner switched to gas because it was clean and easy. What she was not prepared for were the rising prices. ''I never realized that I was going to end up paying three times more than I used to pay," she complained. ''It was probably a mistake to change."
http://www.boston.com/business/artic..._cheap_no_more

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