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Natural-gas prices go up as heat rises

As the temperature keeps rising, so does the price of natural gas. Natural-gas futures in New York have surged 69 per cent since hitting a 10-year low this spring.

As the temperature keeps rising, so does the price of natural gas.

Natural-gas futures in New York have surged 69 per cent since hitting a 10-year low this spring. Power plants are burning more natural gas for electricity as homes and businesses crank up the air conditioning. And natural-gas companies are finally cutting back after a production boom that pushed supplies this winter to the highest level on record.

The price jumped another 6.6 per cent Monday after forecasters predicted an especially toasty August, with unseasonably warm temperatures throughout the Midwest. Natural gas ended the day at $3.214 per 1,000 cubic feet, a high for the year.

"As long as we see strong cooling demand, prices are going to go higher," said Gene McGillian, a broker and analyst at Tradition Energy.

Still, natural gas is about 35 per cent cheaper than at this time last year. The recent jump in prices probably won't affect utility bills.

Electricity rates are shielded from price spikes in a couple of ways. Utilities lock in gas prices for years at a time to protect themselves from quick shifts in price. And in many states, rates are set by regulators every year or two.

The rise in natural gas has other impacts, however. As it gets more expensive, utilities will likely burn more coal, independent petroleum analyst Stephen Schork said. He noted that natural gas was cheaper than coal from February to May, making it the preferred fuel source for many utilities. But coal is now cheaper than natural gas.

Natural-gas prices have been climbing as temperatures rise. This year saw the second-warmest April-through-June period on record in the U.S. Many utilities burn natural gas to generate electricity, and electricity demand jumps during a heat wave as power customers run their air conditioners more often.

Meanwhile, natural gas producers have been shutting down natural-gas drilling operations.