Natural Gas Prices Soar at California Border

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Natural Gas Prices Soar at California Border Source: Knight Ridder/Tribune Business News Publication date: 2000-11-23 Arrival time: 2000-11-27

Nov. 23--A North American natural gas shortage has caused prices across the nation to rise dramatically, but Southern California border prices have exploded this week to more than twice the national average. Natural gas spot prices at the border were $17.50 per million British thermal unit (BTU) compared with $6.30 per unit for the U.S. standard "Henry Hub" price on Nov. 22. Such high prices, if they hold, can seriously affect electricity bills for consumers.

The natural gas shortage is so acute locally that San Diego Gas & Electric has been forced to cut off natural gas service to some big industrial users and power plants.

Because both San Diego Gas & Electric and Southern California Gas purchase most of their natural gas at the Southern California spot price, the price spikes are bad news for residential and business customers in San Diego and Southwest Riverside counties.

In July 1999, natural gas prices at the border were $2.30 per million BTU, but that price rose to $4.60 by July 2000 and increased further to $5.20 by mid-October.

SDG&E officials said last month that the average customer can expect a natural gas bill of $56 per month this winter, compared with $39 last winter, a 44 percent increase. Southern California Gas customers can expect an average bill of $70 per month, compared with $50 last year, a 40 percent jump.

But those estimates were based on natural gas prices averaging around $5 per million BTU this winter, not $17.

Few expect the current high natural gas spot prices to hold, but if the price averages $8 for the winter (the average last week), the average SDG&E bill could jump to $80 per month while the average Southern California bill could jump to $100 per month.

Like electricity bills, natural gas bills have two components: (1) a delivery charge that is regulated by the public utilities commission which does not fluctuate from month to month, and (2) the charge for the natural gas commodity which is subject to market fluctuations.

The specter of natural gas prices hitting $17 per million BTU has surprised even the most seasoned industry analysts. The spikes are the equivalent of the price of a gallon of milk going from $3 per gallon last year to $6 a gallon this summer to $22 per gallon now.

"The weather has been quite cold in the Northern U.S. and in Northern California, and as a result demand for natural gas is up, and most of that increased demand is coming out of inventories," said natural gas analyst Samuel Van Vactor. Van Vactor said that natural gas inventories are down 12 percent over last year.

Van Vactor said that Southern California border's higher-than-average prices are difficult to explain.

"We have been trying to track that down for a number of months, but you cannot pin it down to a single problem. It is a convergence of a number of small things," said Van Vactor, who said that demand levels, production levels and pipeline capacity combine to affect prices. "Natural gas prices at the Washington-Canada border have been higher than the national average and at times higher than the Southern California average. It is really a problem with the entire Western system."

Southern California receives most of its natural gas via a pipeline system that runs through New Mexico and Arizona, bringing natural gas from the Rocky Mountain region. Northern California, Oregon and Washington receive natural gas primarily from pipeline systems beginning in Canada.

Sempra officials said that natural gas supplies to residential and small business customers would not be interrupted this winter. Sempra is the parent company of SDG&E and Southern California Gas.

"There are about 80 non-core customers that could be curtailed in the event of high demand; we did have some limited curtailment of those customers last week," said Sempra spokesman Art Larson. "The core residential and small-business customers make up about 35 percent of the total demand for natural gas, and they are our first priority; we do not foresee any interruptions."

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=16081574&ID=cnniw&scategory=Utilities%3AGas

-- Martin Thompson (mthom1927@aol.com), November 29, 2000

Answers

Good grief -- nat gas is now up to $8? Where will it end

-- RogerT (rogerT@c-zone.net), November 29, 2000.

I simply can't believe these high prices. Is there any end in sight?

Heaven help us all.

-- Nancy& (nancy7@hotmail.com), November 29, 2000.


"It is a convergence of a number of small things" Uh-huh. Just this year. Like a lot of small chips, maybe? We'll probably find out a little after we find out the truth on the Kennedy assasination, Vince Foster, et al. Oh well...

-- bc (programmer_farmer@yahoo.com), November 29, 2000.

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