The value chain of the gas industry consists of oil and gas exploration, drilling, gas processing, transmission and distribution, and the final end users such as residences and industries. After three years of stable residential gas expenditures, the forecast for this year indicates a rise of 40 percent.
The price components of natural gas are production costs, processing costs and the transmission costs. There are number of players such as the oil and gas companies, refineries, and long distance and local transmission companies. According to the Energy Information Administration, the production cost is almost 50 percent of the price. The average wellhead price is 5.46 dollars per thousand cubic feet in 2004. The end user price varies according to the type of customers. The industrial price is approximately $6.50 and the residential prices are $10.50.
The residential prices vary among states due to the proximity of the wellheads, number of pipelines traversing the state and competition. Texas has the lowest price and Hawaii pays the highest price. During winter, the major concern is the gas bill for heating homes. There are various factors affecting the price of natural gas. A weak production or a disruption in the production could send the prices upwards. For instance, the hurricanes Katrina and Rita have caused production operations to shut down.
Similarly, there are other factors such as high demand, high import costs and inadequate inventories resulting in high prices for gas. High demand comes from severe weather conditions, such as prolonged cold winters and hot summers. Shortages of other fuels used in industries also force industries to convert to natural gas heating systems.
There are a number of ways prudent residential users could reduce the price. To start with, energy audits could be done to understand energy-saving opportunities. Alternatively, customers could shop for low priced companies. Some states have subsidy programs for low-income groups.