Natural gas shortage could double home heating bills Hot economy has power plants, manufacturers using winter inventories

By Dina Temple-Raston USA TODAY

Just when you thought you'd dodged the slings and arrows of $2-a-gallon gasoline, another energy crisis is looming: A shortage of natural gas threatens to double heating bills this winter as producers struggle to meet demand.

''When you reach capacity and demand keeps going up, the gas goes to the highest bidder,'' says Bill O'Grady, energy analyst at A.G. Edwards in St. Louis. ''If we have a hot summer and a bad winter, we could see prices double.''

Natural gas supplies are thin for two reasons: Oil and gas producers cut back on exploration when prices went through the floor two years ago, and power plants and manufacturing concerns -- the two biggest consumers of natural gas -- are gobbling up inventories normally set aside for winter.

Producers typically start accumulating natural gas in early April and by now have about 656 billion cubic feet in reserve. Right now, though, they have only about 458 billion cubic feet, according to the American Gas Association.

And while Saudi Arabia's recent decision to step up oil production will ease world oil supplies and drive down prices, there will be little crossover effect on natural gas because nearly all of U.S. supplies come from North America.

Crude oil prices plunged almost 6% on Wednesday, to $30.67, in anticipation of the larger oil supply. Natural gas for August delivery also fell about 8% to $4.11 per 1,000 cubic feet. That's still a far cry from the $2.75 to $3.25 range it traded at this time last year and closer to the $4.60 record it set in December 1996.

''In the next six months, the big thing to be concerned about is temperature -- that will dictate what happens to natural gas prices,'' says William Kucewicz, publisher of GeoInvestor.com, which does online economic analysis.

O'Grady agrees. He says a bad roll of the meteorological dice could have consumers paying $8 per million British thermal units (or BTUs) for natural gas when the weather turns colder -- about twice the current price.

How did this happen? Analysts say consumers are getting their comeuppance in the wake of 1998's low oil and gas prices. Companies lost the incentive to develop new wells. Manufacturers of oil- and gas-drilling equipment couldn't give their products away. Skilled workers left the industry.

Now, with crude oil prices in the $30 range and natural gas above $4, drilling companies can't ramp up activity fast enough. New fields aren't on line yet, and there is a shortage of drilling equipment and employees.

''The industry is caught in a pickle,'' Kucewicz says. ''They are actually buying used, rusted equipment, they are so desperate.''

In many ways, the bill for the nation's breakneck economic growth is coming due. After 111 months of expansion, the economy is stretched thin. Giddy consumers are buying gas-guzzling cars again. Home offices have sprouted a bevy of new devices -- from computers to fax machines to laser printers -- that are sucking up electricity. Manufacturing plants are running near full capacity and need more electricity to do so.

The magic inventory number gas suppliers want to reach by the beginning of November is 3 trillion BTUs. Analysts say producers will be lucky to get to 2.6 trillion before cold weather sets in.

''The situation will get worse before it gets better,'' Kucewicz says.

http://www.usatoday.com/usatonline/20000706/2431463s.htm

-- Cave Man (caves@are.us), July 06, 2000

Answers

There's no shortage of "natural gas" on this board...Andy Ray et. al. come immediately to mind....PHEW!

-- Plenty (OfBlowHards@Here.com), July 06, 2000.

Methane Jones

You thought the addiction to foreign crude was embarrassing, but consider gas. Despite wildly optimistic US resource assessments, most marginal natural gas sold in the US comes from Canada. q.v. That's OK. Everyone knows the Canadians are nice, reasonable fellows who've always been good to us, eh? Except the Canadians have on the books a vague law q.v. that allows them to rein in the petroleum trade whenever it appears to be in their interest (and making the US pay dearly was in their interest in the late 70s); and the Canadians export most gas to the US under short-term contracts. q.v.1 q.v.2 So read the Financial Times report that all might not be aces in Alberta not as grounds for panic in needle park, but as a sort of distant warning that somebody should be looking into. The Canadian Potential Gas Committee has no definite word, pending release of a major study next year, but their site includes some interesting preliminary analyses. q.v.

http://qv3.com/policypete/policypete.htm

-- Cave Man (caves@are.us), July 06, 2000.