FARMINGTON — Along with the unusually bitter cold temperatures that descended on the country this as winter approaches came a significant spike in natural gas prices, leaving some to speculate whether things might be starting to look up for natural gas development.
According to the U.S. Energy Information Administration, this week's gas prices reached a high of $4.44 per million British thermal units, which is the highest price seen since July, 2011. Many forecast that prices could keep rising as long as the temperatures stay low and the natural gas supply decreases.
Any increase in energy cost and demand is good news for local producers, but to have a significant positive impact on the natural gas industry, the trend will have to continue. Some local industry officials and producers say a sustainable upward movement does not appear to be likely, at least anytime soon.
"I really do think it (the increase) is weather-related," said state representative and local independent oil and gas producer James Strickler. "We've been bringing so much gas onto the market, I just don't see prices staying up very long."
Strickler predicts that prices will start to drop as soon as temperatures start rising, and said that until key factors change in the way the natural gas industry is allowed to operate, prices will stay low.
"If we could export the gas and sell it to countries like China, India or Japan, that would make a difference, but we're just not there yet. This increase is just a temporary bump."
Doug Hock, spokesman for Encana Corporation, agrees. Encana recently announced plans to invest up to 450 million dollars next year in oil and gas production in the San Juan Basin.
"While we're seeing a bit of a spike in the prices, if you look at the natural gas supply, there's such a huge glut that I don't anticipate much of a change for the foreseeable future," he said.
Wally Drangmeister with the New Mexico Oil and Gas Administration said the increase is significant, but only relative to how low gas prices have been in the recent past.
"It's a huge increase, but off of an incredibly low base rate for the past several years. But the fact that we're seeing even a little bit of a better price is good news in the San Juan Basin," he said. "What we don't have the answer to is what level natural gas prices have to reach for there to be a renewed interest in natural gas development."
Drangmeister said key factors to renewed natural gas drilling include not only higher prices, but also consistency and sustainability of a price increase.
"It does not appear that the recent upturn involves these factors, but it's good that prices are higher. The industry is struggling, so it's good whenever we have any sort of increase."
While the higher natural gas price -- temporary though it may be -- means good news for producers in the Basin, customers are the ones feeling the heat on their utility bills. The average Farmington residential bill for last January was $116, and this year is projected to be $129, meaning customers will pay an average of $13 more next month.
"Customer rates are set by the Public Regulation Commission," said Teala Kail, spokeswoman for the New Mexico Gas Company. "There's no change or mark-up in the rate the customer pays, but as the price of gas goes up, the customer also pays a higher price. That's the only portion of their bill that fluctuates, and they do pay for the higher cost of the gas they use."
Kail said because the amount of a customer's bill depends on the amount of natural gas they use, customers choosing to dial down the thermostat or winterize their homes can significantly reduce their bills.
A dwindling supply of natural gas has been one explanation for the higher rates, but Kail said supply is not an issue.
"The higher price is based on the higher demand. It has nothing to do with the supply, which is stable and ample," she said. "Natural gas is a commodity, and the cold weather we've experienced nationwide over the last several weeks, coupled with an increased demand for natural gas, has nudged prices up. This is common in the winter heating season, and this doesn't appear to be a long term trend."