Rise in natural gas prices prompts questions, complaints

If the law of supply and demand really drives commodity prices, then something seems amiss in the natural gas market.

Natural gas futures are trading on the New York Mercantile Exchange at prices roughly 50 percent higher than a year ago, even though government data show that demand has declined and pre-winter storage levels are well above historical norms. This is in stark contrast with the oil market, where prices are higher amid global output limitations and unexpectedly strong consumption.

The rise in natural gas prices has coincided with a big increase in trading by hedge funds and other speculators. And in a recent letter to lawmakers, an organization representing industrial users of gas says the market has become vulnerable to manipulation.

Whatever the cause, homeowners who rely on natural gas are feeling the pinch: the Energy Department predicts they will spend on average $1,000 this winter on heating bills, a 15 percent increase.

In Utah, state regulators have given interim approval to a 10.4 percent increase in natural gas prices for Questar Gas Co.'s roughly 750,000 Utah customers, an increase in the average monthly bill of $7.37 for the typical residential customer using 115 decatherms of gas per year.

The Salt Lake-based utility said the increase is being driven by increases in purchased gas prices for the Rocky Mountain region and undercollected costs.

Manufacturers of chemicals, plastics and resins, for whom natural gas is both a raw material and an energy source, are complaining to Congress about their fuel costs after a steep rise in prices in September and October.

The jump in natural gas prices has not received as much media attention as the oil-price run-up, but consumer advocates and industry groups say it is more troubling from their perspective. Most natural gas pumped to American factories and homes is produced domestically and shouldn't be as vulnerable to the geopolitical turmoil that has roiled oil markets.

"The natural gas market price is no longer being set by consumers' demands for the physical supply of gas," Paul Cicio, the executive director of the Industrial Energy Consumers of America, said in a letter sent to members of Congress. "Instead of the market serving the greater public good, it serves the investment interests of ever-growing unregulated billion-dollar hedge funds that are completely disconnected from the consumer and manufacturing market."