Wednesday, February 11, 2009

Another Data Point on Gas Prices

A recent article in the Wall Street Journal gave some additional insight on why natural gas prices have remained low, even during the winter, a time that prices traditionally rise as demand for home heat increases.

The article notes that, while many Northeast U.S. households use heating oil, approximately 72% of the homes in the Midwest use natural gas. Households in general represent more than 20% of U.S. natural gas consumption. The article points out that the combination of a general recessionary climate and the increased number of foreclosures and vacancies have conspired to reduce demand. People simply aren't turning up the heat, even though January 2009 was 8.3% colder than last year. Demand has slacked because people want to save money.

Foreclosures are another interesting situation. The number of homes vacant due to foreclosure has increased significantly, and many banks are saving money by abandoning the previous strategy of continuing to heat vacant homes to reduce risk of freeze damage. Additionally, because home sales have slowed, more homes are vacant. Retail closures have also cut into demand as many vacant stores don't require the same level of gas service.

Anecdotally, Dominion East Ohio, the utility for Cleveland, notes that temperatures have been 25% colder this winter, but natural gas use has been 5%-10% below that of similarly cold winters.

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