Sep. 30--Consumers are expected to get a break on their winter heating bills tomorrow.

That's when Pittsburgh's natural gas utilities -- Dominion Peoples and Equitable Gas, both on the North Shore, and Canonsburg-based Columbia Gas -- will set new quarterly rates, and the odds are good that customers of all three will see rate reductions.

The wholesale price of natural gas has been falling since July 2008, recently reaching its lowest levels since 2002. The state's public utility code forbids gas utilities from either making or losing money on the gas that they sell. To comply, the companies employ a complicated series of calculations to make the prices that they charge consumers, which are reset every three months, correspond with the wholesale prices, which change constantly.

According to the U.S. Energy Information Administration, the average spot price in August for Henry Hub natural gas, named for the Louisiana juncture that connects more than a dozen pipelines, was $3.23 per thousand cubic feet (mcf). In August 2008, it averaged $8.50 per mcf, after reaching a monthly average of $13.07 two months earlier. The federal agency expects prices to fall even further next month, to $2.32 per mcf, the lowest monthly average since September 2001.

Matt Pitzarella, from the Washington, Pa., office of Fort Worth, Texas-based Range Resources, which has a large Marcellus Shale drilling operation, said the low prices that benefit consumers are not entirely bad for producers either.

"We don't need to see gas prices through the roof in order to make this work," he said. "It's better to be consistent."

The falling prices reflect an increase in supply and a drop in demand over the past year. As of Aug. 28, the United States had 3.23 trillion cubic feet of gas in storage, nearly a two-month supply and half a trillion cubic feet above the five-year average.

And producers still are delivering gas into storage, as the injection season continues to Oct. 31. By then, the EIA expects inventories to reach 3.84 trillion cubic feet, 275 billion cubic feet higher than the previous record of 3.57 trillion cubic feet set at the end of October 2007.

Record inventories are a result of improved drilling techniques that have resulted in greater production even with reduced rig counts.

Meanwhile, demand has decreased. So far this year, natural gas consumption has fallen 2.4 percent from last year. That's the first drop in consumption since 2006, when it fell 1.5 percent, and the largest drop since 2003, when it fell 3.2 percent.

"When the economy is down, the industrial sector, which is one of the largest consumers of natural gas, tends to use less," Mr. Pitzarella said.

There is a saying in the world of commodities that the cure for low prices is low prices. That is, when prices remain low long enough to affect bottom lines, then producers will cut production to reduce supply, which typically causes prices to rise. That cure may come soon. The EIA projects modest price increases in 2010 as producers cut back.

Elwin Green may be contacted at egreen@post-gazette.com or 412-263-1969.

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