Big price hikes in pipeline for natural gas

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Fair use for educational/research purposes only! 8.25.2000 00:15 Big price hikes in pipeline for natural gas With prices already at record highs and supplies low, consumers are being warned that the worst is yet to come.

By DAVE CARPENTER Associated Press

CHICAGO -- Already warned that home-heating oil prices are likely to soar this winter, consumers are being told that the price of heating their houses by natural gas could also soon hit near historic highs.

The reasons for the expected jump are as varied as a pipeline explosion in New Mexico and the threat of a hurricane in the Gulf of Mexico that raised fears of another blow to already-low natural-gas supplies.

Soon the aftershocks will be felt by consumers nationwide, whose utilities were already warning them to brace for big bills ahead.

For example, Valley Gas Co. in Rhode Island earlier this month notified the state Public Utilities Commission that the wholesale price it pays for natural gas is increasing by 325 percent. The situation could be even worse for customers of Providence Gas. It's three-year contract that locked in gas supplies at a low price is about to expire at the end of next month. The utility, along with its customers, can expect to pay much more for natural gas during the next heating season.

Suzanne deGraff, a natural-gas customer from Rochester, N.Y., said she's been told her monthly bill from Rochester Gas and Electric Co. will jump about $26, to $130.

"I'm not happy," she said, "but, again, they're the only ones in town. What am I going to do?"

U.S. supplies of natural gas have been declining since the mid-1990s amid a falloff in production by energy companies that didn't find it worth their while when prices were low.

Prices are no longer cheap -- they've more than doubled in the last year and a half and reached an all-time high of $4.85 per million BTUs (1,000 cubic feet) this week on the New York Merc, where futures prices are a precursor for wholesale and retail trends.

But production hasn't been revved back up, rising just 1 percent this year. And demand is up sharply in a booming economy that has more Americans plugging into computers and industrial use surging. The nation depends increasingly on natural gas to generate electricity as utilities gradually switch from coal and nuclear-powered plants.

The situation has worsened this summer, with heavy usage preventing the industry from stockpiling for the winter heating season ahead as it usually does. Natural-gas inventories are near six-year lows.

That leaves gas prices highly susceptible to supply disruptions -- such as last Saturday's pipeline explosion in New Mexico that killed 11 people and shut down a primary gas main supplying California. Tropical Storm Debby's brief advance toward key production facilities in the Caribbean and the Gulf of Mexico raised fears of similar trouble and propelled prices higher before they fell back.

If further disruptions or heavy demand drain dwindling stockpiles further, rationing and industrial shutdowns are "a pretty good possibility" this winter, especially involving natural gas, says analyst Michael Lynch of WEFA, an economic think tank in Bedford, Mass.

Edward Kelly of Cambridge Energy Research Associates in Houston stops short of predicting such an energy crisis. But he says the market is the most vulnerable it's been since energy deregulation two decades ago.

"It's the worst situation since at least the early 1980s," he said. "It's been difficult . . . to store enough gas for this winter."

Experts say consumers could skate by this winter only if last year's warmest winter on record is followed by one just as warm or warmer. But according to at least some meteorologists, the pattern of historically warm winters is at an end.

"If we have a winter that's just normal, we're going to see potentially astronomical natural-gas prices -- much higher than we see today," said David Chang, senior energy trader for Bank of America in New York.

http://www.projo.com/cgi-bin/story.pl/news/04136241.htm



-- Martin Thompson (mthom1927@aol.com), August 25, 2000


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