Natural Gas Prices Outlook

March 7, 2003

Unusually cold weather in almost all regions of the United States, coupled with tight natural gas supplies, is causing natural gas customers to experience higher utility bills this winter as compared to last year.

Demand for natural gas has gone up significantly because temperatures across the country have been considerably colder than last year. Temperature comparisons from the National Oceanic and Atmospheric Administration (NOAA) show: New England—45 percent colder than last year; Mid-Atlantic—55 percent colder; East North Central—35 percent colder; South Atlantic—33 percent colder; East South Central—16 percent colder; West South Central—17 percent colder.

Besides the colder temperatures, lower natural gas storage levels have contributed to the spike in gas market prices. However, only a portion of the natural gas that is delivered to consumers is purchased on the spot market.

To supplement their winter supply, gas utilities typically purchase and store large volumes of natural gas during the spring and summer when gas prices are lower. Gas utilities use both this physical storage and special financial tools to "hedge" a portion of their total gas supply for their customers, helping to moderate the effects of market-price volatility on consumers’ utility bills.

"Atmos Energy customers in Colorado can expect a lower outlook for their gas costs the remainder of the winter than prices on the national spot market. Forty-one percent of the gas being used by our Colorado customers this winter was purchased on a fixed price contract or purchased and stored last summer when gas costs were more favorable," said Gary Schlessman, president of Atmos Energy’s Colorado / Kansas Division. "In addition to the gas, that averaged $2.73 per thousand cubic feet (Mcf), the Company purchases twenty-six percent of gas utilized by Colorado customers from Wyoming which typically does not trade at the national spot market level," Schlessman said.

Atmos Energy files Gas Cost Adjustments (GCA) with the Colorado Public Utilities Commission (PUC) typically in October of each year. Due to rising gas costs, Atmos Energy recently filed a Gas Cost Adjustment with the Colorado Commission asking for approval to increase current commodity costs effective March 14, 2003. Rate increases ranged from 20% to 24%.

"We want our customers to know that we are constantly using stored gas, fixed price gas, pipeline gas, and market gas to obtain the least-expensive gas we can supply to our customer," Schlessman added.

"The tumultuous events in energy markets during the past two years serve to underscore the importance of adequate and reliable supplies of reasonably priced natural gas to consumers, to the economy and to national security," said Robert W. Best, chairman, president and chief executive officer of Atmos Energy Corporation of Dallas and vice chairman of the American Gas Association (AGA). Natural gas meets one-fourth of current U.S. energy needs and is the fastest-growing major energy source, according to AGA.

The relationship between natural gas supply and prices is at a critical crossroads, Best told the U.S. Senate Committee on Energy and Natural Resources at a hearing in Washington, D.C., on February 25. "We’re not here to tell you that the sky is falling today--but there must be some urgency to this matter," he testified.

"The challenge for government and industry is straightforward: to ensure that the current need for natural gas is met and that the future need for natural gas will be met at reasonable and economic prices," Best said. "Ensuring an adequate natural gas supply will help to keep natural gas the consumers’ best energy value and will dampen some of the volatility of wholesale gas markets," he said. For more information, visit atmosenergy.com.