No Freeze on Winter Energy Prices, Despite Natural Gas Boom

Winter energy prices in Europe and the United States are rising. Natural gas, the favored heating fuel, is abundant but hard to move.

Leave it to British wits to put to rest any notion that the world's winter energy woes have been eliminated by the North American natural gas boom.

They let loose Thursday, soon after Great Britain's largest energy supplier, British Gas, announced a 10 percent price hike to go into effect on the eve of the cold season. In what will go down as one of the great corporate social media faux pas, the company invited customers to dialogue using the hashtag #askBG on Twitter.

"Is it true that the water fountains at British Gas HQ are filled by collecting the icy tears of freezing children?" tweeted freelance animator Adam Proctor (@fortsunlight). "Do the @BritishGas board prefer to bathe in £20 or £50 notes?" tweeted the creative ad agency, Don't Panic London. "British Gas: Freeze pensioners, not prices," said one of the few mock ads that did not contain profanity. (See related quiz: "What You Don't Know About Home Heating.")

Things only got worse when U.K. Energy Secretary Ed Davey chimed in that he kept his heating bills down by wearing a jumper (British slang for a pullover sweater.)

This unleashed a "#jumpergate" torrent, even though Prime Minister David Cameron's spokesman tried to disassociate himself from his cabinet member's comment.

"Let them wear jumpers!" declared The Independent newspaper. "We burned our jumpers last winter," tweeted Tara Herman, an executive producer at The Guardian. "Perhaps the Tories can donate some of theirs?"

The dark humor underscored a serious reality about what the International Energy Agency just two years ago suggested might be "the golden age of gas." Unlike coal and oil, natural gas is difficult and expensive to transport. So even though hydraulic fracturing, or fracking, has allowed the United States to ramp up production quickly enough to overtake Russia as the world's leading natural gas producer, it won't directly warm homes across the pond this winter. (It may do so only indirectly, by continuing to cheapen U.S. coal enough to fuel record exports, much to the detriment of European Union goals to cut carbon dioxide emissions.) (See related quiz, "What You Don't Know About Natural Gas.")

In the Shadow of Plenty

Even within the United States, where more than half of households rely on natural gas for heat, consumers will  be hard pressed this winter to find any sign of the hydraulic fracturing gas bounty on their utility bills.

Forecasters at the U.S. Energy Information Administration (EIA) see a 13 percent increase in heating costs this season for households that use natural gas.

Offering some consolation, EIA points out that natural gas bills still will be lower than the five-year U.S. average. And homes heated by natural gas still will be significantly better off than the 6 percent of U.S. households, primarily in New England and the Middle Atlantic, that still rely on heating oil. For them, despite a slight drop in price from last year, EIA's forecast is for an average winter heating bill of $2,046, roughly double the cost of keeping warm for homes that use natural gas ($1,045.)

Several complex factors have contributed to higher natural gas prices in the United States, despite the ongoing fracking boom and high production.

Bottlenecks slow the movement of natural gas from remote fields to customers. (See related, "Space View of Natural Gas Flaring Darkened by Budget Woes.") Home heating customers aren't the only ones lining up for natural gas; both electricity generators and big industry customers are clamoring for the same fuel, and there's only so much pipeline to deliver it. EIA noted that chilly New England in particular saw "extreme price spikes" in both natural gas and electricity during the winter of 2012-13 due to pipeline constraints.

Unfortunately for the poor, higher winter energy prices hit at the same time that U.S. budget woes have sliced total funding for low-income heating assistance from $5.1 billion in 2010 to $3.3 billion in the fiscal year just ended. The number of households served declined about 19 percent, to 6.6 million, and the average benefit was cut about 20 percent, to $401.

It all comes at a time when more people are in tight financial straits due to the sluggish economy, said Mark Wolfe, executive director of the Washington, D.C.-based National Energy Assistance Directors Association, which advocates for heating assistance for low-income families. "These programs (heating assistance) were designed to deal with a much smaller population of people in need," he said. "We have a lot people who are out there living from paycheck to paycheck."

Out of Gas in the EU

In Europe, which is continuing to struggle with its own economic recovery, the factors affecting winter energy prices are even more complex. British Gas, like another supplier, Scottish and Southern Energy (SSE), which announced a winter price hike of 8.2 percent one week earlier, cited higher distribution and wholesale costs, as well as the expense of meeting government "green" energy regulations.

As its once-bounteous North Sea fields have aged, the United Kingdom's own natural gas production has fallen 60 percent over the past decade. The U.K.'s imports of natural gas from Norway via pipeline have risen significantly in recent years, but a number of outages and maintenance issues have strained these flows. Norway's production is down by about 30 percent because of technical problems at Troll, its major gas field.

In theory, European countries could tap into the natural gas is being produced in abundance in the fields of Qatar and Algeria, both of which have invested billions of dollars on facilities to super-chill the fuel into liquefied natural gas (LNG) and send it by tanker ships to the world market.

But LNG ships from the Middle East and Africa are turning their sterns to the European Union because they can gain far higher prices for the fuel by traveling to Asia and the ravenous markets of China and energy-strapped Japan.

Meanwhile, continental Europe relies heavily on Russia for natural gas, much of it delivered by pipeline through Ukraine. Analysts are debating whether a continuing dispute between the Ukraine and Russia will result in a reprise of the gas shortages and high winter prices that staggered Europe in 2009.

But regardless of the outcome of this year's Ukraine issues, EU regulators are preparing an antitrust action against Russian monopoly Gazprom, charging it has hindered the free flow of gas across the continent and imposed unfair prices.

Open Grid Europe, Germany's leading natural gas carrier, warned about possible supply disruptions across Europe this winter because many European countries were forced to delay replenishing their stores because of a long, unseasonably late cold snap last spring. "One cannot rule out the possibility of supply restrictions occurring," it said, concluding Germany and neighboring countries were most at risk. According to Gas Infrastructure Europe, Europe's storage levels are at 81 percent capacity, 10 percentage points lower than a year ago.

In the long run, the fracking boom that began in North America might spread natural gas supply and ease prices. The United States is moving forward with plans to build its own LNG terminals to export gas. (See related, "With Natural Gas Booming, a Move to Send it Overseas.") And England and other E.U. countries hope to tap into their own underground shale reserves with fracking. (See related, "U.K. Dash for Gas A Test for Global Fracking.") But both potential moves—U.S. gas exports and E.U. fracking—are steeped in political controversy, so any significant increase in supply to the global market is years away.

For this winter, expectations are now high that the four other big U.K. energy suppliers will fall in step with British Gas and SSE and raise prices. "If there is one thing history has taught us, it's that the other four will likely increase their prices by next month, as well," said Audrey Gallacher, director of energy at Consumer Futures, a U.K. consumer watchdog.

And the political fallout is likely to continue, as Britain's Labour Party leader, Ed Miliband, recently promised that if his party wins the next election it would freeze energy prices for 20 months. The pledge was quickly labeled as a "con" by Cameron, who pointed out that no government leader has the power to control world gas prices. But in a country where the government tracks "excess winter mortality," and where thousands of deaths, primarily of the elderly, are attributed to the cold, the issue is an emotional one, as British Gas learned in its ill-fated Twitter chat.

How well England weathers the energy price storm will depend greatly on the weather. Long-range forecasts are notoriously inaccurate, but Britain's upcoming winter is expected to be, like last season's, "colder than average."

Get out your jumpers.

(Related Interactive: "World Electricity Mix")

Patrick J. Kiger in Washington, D.C., and Thomas K. Grose in London contributed to this report.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

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