http://www.dallasnews.com/business/228652_gasprices_02bu.html

Turmoil hits energy markets

Natural gas prices reach record levels

12/02/2000

By Terry Maxon / The Dallas Morning News

Low storage levels and the onslaught of cold weather have pushed natural gas prices to all-time highs, with winter still ahead for consumers.

Natural gas closed Friday at $6.673 per million British thermal units on the New York Mercantile Exchange futures market, its highest close ever. A year earlier, it was hovering just above $2.

The "scary part," said Dallas-based energy analyst Jim Wicklund of Dain Rauscher Wessels, is that prices have reached these heights with the winter heating season just beginning.

"We don't know what the upper limit is," he said.

The current rise in prices is no surprise, "not given what we've seen with weather and storage withdrawals," said another energy analyst, Tom Robinson of Cambridge Energy Research Associates.

The American Gas Association reported this week that the U.S. natural gas in storage decreased by 5.5 percent, down 146 billion cubic feet to 2,502 billion cubic feet last week. By comparison, storage increased 5 billion cubic feet in the same week last year to 3,001 billion cubic feet, and was up 8 billion cubic feet to 3,077 billion cubic feet in 1998.

To put it another way, U.S. storage is at about 76 percent of capacity now, compared with 92 percent in late November 1999 and 95 percent in 1998.

"This is a market that's short on gas right now, and the signs of early cold winter and its effect on storage are putting even more intense pressure on the gas market," said Mr. Robinson, a Cambridge Energy Research managing director.

What's true across the country is true in Texas.

Figures from the Texas Railroad Commission show that the state had 226.6 billion cubic feet in storage on Oct. 31, the day before the state's heating season official begins. That's a 31 percent decline from the 328.5 billion cubic feet the state had on Oct. 31, 1999.

Texas Railroad Commission member Charles Mathews said he is concerned about the lower levels of gas in storage in Texas as winter approaches.

"During the winter time, there's never enough production. We're always producing flat out all of the time. We handle the extra load demand by pulling gas from storage. There simply is not enough gas in storage," he said.

That low amount of storage makes it difficult to predict how high prices could go in winter 2000-'01, said Mr. Wicklund of Dain Rauscher Wessels.

"All bets are off. We're only 20 percent into winter. We're way early, and we're already half a [trillion cubic feet] below last year. So the problem right now for the people in the industry isn't so much where the price will go, but who gets cut off," Mr. Wicklund said.

That raises the possibility of more instances in which gas suppliers cut off gas to non-critical users like manufacturers, chemical processors and the like. "It doesn't have to be a colder than normal winter than usual" to have a lot of curtailments of supply, he said.

Last winter, the United States finished the heating season with about a trillion cubic feet in storage. At the current rate, U.S. storage may be only a half trillion cubic feet at winter's end, he said.

"Utilities will pay whatever they have to pay to keep peoples' homes heated," he said.

Mr. Robinson said at some point, it will be cheaper for utilities to cut off customers than to keep bidding natural gas higher.

"The spot price in the California corridor is $18 today, so you can see some of the levels in California markets are quite extreme. In terms of the broader market, it's not inconceivable that we can see $7, $8 gas if we have extremely cold weather in December," Mr. Robinson said.

"It's hard to say how high beyond that. At a certain point, it will interrupt certain manufacturing processes – chemicals, ammonia, things like that, and take some of the pressure off the market. There are tough decisions to make," he said.

Ray Granado, spokesman for TXU Electric and Gas, said there are a number of reasons why the higher gas prices won't translate into comparably higher bills for electricity and gas customers in North Texas, although bills will increase.

The prices paid on futures and spot markets "aren't indicative of average prices to consumer," he said.

For electricity customers, the impact will be lessened by the fact that TXU generates much of its electricity from lignite and western coal and from nuclear energy. Natural gas produces less than 40 percent of its electricity.

For gas customers, the cost of fuel is only a portion of the bill, with other costs comprising about two-thirds of the bill, he said.

In addition, TXU has some contracts to buy natural gas at prices far below current prices.

The Public Utility Commission has given TXU and a number of other Texas utilities permission to raise electricity rates to cover higher natural gas costs, with a surcharge to recover higher fuel expenses incurred before the rate increase was approved.

TXU, which won approval for the first increase in early September, recently returned to the PUC for another hike in electricity rates as its gas costs kept rising.

Experts said that the high prices today are caused partly by the low prices of several years ago, not just for natural gas but for oil.

A collapse in crude oil prices in 1997 and 1998 caused a dramatic cutback in drilling and exploration. Existing gas wells were declining in production faster than new wells were being drilled and their production added to the total.

Since early 1999, oil prices have tripled, and natural gas prices have done the same just this year. As a result, new drilling has increased.

Through Oct. 31, the number of gas wells completed in Texas has risen to 3,782, up 29 percent from the same date in 1999, according to Railroad Commission reports. October 2000 by itself had 429 wells completed, a 57 percent increase from October 1999.

Even so, the 2000 completions lag 1998 by 12 percent and are barely above the levels of three years ago.

Mr. Mathews said the 1998-'99 decline devastated the oil and gas industry, with massive layoffs and shelving of equipment.

"We have not yet recovered from that really severe downturn," he said.

That increased number of drilling permits and completions shows that the industry is ramping back up, "but it will not in any way offset the kind of demand we're seeing," he said.

Even as production declined, there's been a boom in the construction of natural gas-powered generation plants, leading many industry experts to predict that annual natural gas usage will climb from about 22 trillion cubic feet at the beginning of the decade to 30 trillion in the next 10 to 15 years.

Nick Rose, incoming chairman of the American Gas Association, said natural gas prices would stay high through this winter but that more supplies would be available starting in 2001-'02.

"Obviously we're going to have higher prices this winter, no question," he said. "It takes time to get new supplies on board. I personally think we'll see some impact next winter, and then we'll see it come back into balance."

-- Hoping really hard for (a@warm.winter), December 04, 2000

Answers

Natural gas: the five stages to market panic (repost)

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004ATB

-- something (else@to.see), December 04, 2000.

http://www.boston.com/dailyglobe2/336/business/Natural_gas_price_hits_ record_high+.shtml

LINK

Natural gas price hits record high

By Bloomberg News, 12/1/2000

NEW YORK - Natural gas surged to a record high as a larger-than- expected decline in US inventories spurred concern that supplies of the heating fuel would be low throughout the winter.

US gas inventories fell 5.5 percent last week to 2.502 trillion cubic feet, the American Gas Association said in a weekly report Wednesday. Inventories now are 17 percent below year-ago levels. Forecasts for colder weather from Chicago to New York next week helped spur yesterday's rally.

Without a week or more of warm weather, the year-on-year storage deficit ''is only going to widen,'' said Randy Gary, manager of gas supply operations at Indiana Gas, which serves about 510,000 customers in central and southern Indiana. ''That's going to help keep prices strong.''

Natural gas for January delivery rose 40.8 cents, or 6.6 percent, to $6.589 per million British thermal units on the New York Mercantile Exchange. Prices during the session rose as high as $6.73, a record for a most-active contract in 10 years of futures trading. The previous record was $6.62 set on Nov. 22.

Prices are up 47 percent this month and have almost tripled in the past year. Yesterday's gain was the biggest one-day rise on a percentage basis since Oct. 11.

Natural gas is used to heat about 70 percent of US households.

The US Energy Department, has warned that Americans may pay 44 percent more to heat their homes with gas this winter than they did a year ago. The forecast was based on higher prices and expectations that the weather will be colder than it was last winter, which was the warmest on record.

An arctic high pressure system over northern Siberia and northwest Canada will move into the central United States toward the middle of next week, said Jim Rouiller, chief meteorologist at Planalytics Inc. in Wayne, Pa.

The cold wave will move eastward, encompassing the eastern half of the United States by the weekend.

The inventory decline reported by the AGA came partly because of growth in demand over the past several years from gas-fired power plants, and as a growing economy spurred construction of homes and businesses that are heated with natural gas.

Gas heating demand in the United States was 33 percent above normal last week and 88 percent higher than the same week a year ago, according to the National Weather Service.

This story ran on page C2 of the Boston Globe on 12/1/2000.

-- (in@energy.news), December 04, 2000.

http://cbs.marketwatch.com/news/current/sector_energy.htx?source=blq/i synd

Natural gas prices hit record level

Heating oil jumps on foreseen industrial usage shift

By Lisa Sanders, CBS.MarketWatch.com

Last Update: 2:52 PM ET Dec 4, 2000

NEW YORK (CBS.MW) -- Natural gas prices, already three times higher than last year, hit a record Monday as a chilly winter outlook stoked the prospects for rising home-heating bills and pinched consumer spending.

The price of natural gas for January delivery leaped 13.3 percent to $7.560 per million British thermal units. In a first for the commodity, the New York Mercantile Exchange halted trading for an hour as natural gas reached its "lock limit," said John Kilduff, senior vice president of energy risk management at Fimat, an arm of Societe Generale Group.

"It's all about a dire supply situation," Kilduff said. "We're facing frigid temperatures this week, and we're talking about a winter that's already 15 percent colder than normal on a degree basis."

On Nov. 30, 1999, the January contract closed at $2.30 per BTU, Kilduff said. On Oct. 30, 2000, the December contract closed at $4.52.

Kilduff noted the latest rise in prices comes on the heels of last week's American Gas Association report, which showed a sizable draw down in stored inventories.

"It was well outside even the most bullish of estimates," Kilduff said. "If this keeps up -- even with a normal winter -- we won't have any storage left at the end of the winter."

Kevin Kerr, an energy analyst at Ira Epstein & Co, said the market is looking ahead to this week's AGA figures with trepidation. The only way prices will fall is if the AGA reports only a slight draw down or a build on storage.

Billing time

A tripling of natural gas prices doesn't translate into bills for consumers that are three times higher than a year ago, said Allan Brady, economist at The Dismal Scientist. As an example, Brady said that if a consumer paid $100 a year ago -- given the current circumstances -- they could expect to pay an extra $50 this year.

"There are three components to natural gas prices," Brady explained. Distribution, which is the process of moving the gas from the city gate to the home, accounts for 47 percent of costs. Transmission, moving the gas from the wellhead to the city gate, accounts for 19 percent of the costs.

"This has a dampening effect on the flow through of natural gas commodity prices to consumers," Brady said. "Transmission and distribution make up such a large portion of total costs, and they won't change as much or as quickly."

Transmission costs are essentially set, and distribution costs are set by the local utilities. If the utility is regulated, it can't pass through the costs to consumers, and if it's unregulated, a competitive environment would not favor a drastic increase in price to the consumer.

Prices for January heating oil also were rising Monday, adding 3.92 cents, or 4 percent, to trade at 101.00 cents a gallon.

"Heating oil is up on the back of natural gas," Kilduff said. "Industrial users have the capacity to switch from natural gas to heating oil, and that's what they're doing."

Adding to the price jump is the fear of colder weather and a supply disruption, Kerr said.

"And the extreme overselling last week is providing a buying opportunity," he said.

Taking inventory

Heating oil inventories are 50 percent below that of a year ago, said Thorsten Fischer, an economist at The Dismal Scientist. The high for heating oil futures was set back in 1979 at 115 cents a gallon.

"If we see average temperatures this winter, heating oil will follow natural gas prices (upward)," Fischer said. Given the scenario of an average winter, he predicted that heating oil bills for consumers would be anywhere from 33 to 50 percent higher.

January crude futures continued to move lower, casting off 84 cents to trade at $31.18 on the New York Mercantile Exchange. On Friday, January crude closed at $32.02 a barrel, the lowest level for the commodity since the $31.83 closing low of Nov. 8.

On Sunday, the Associated Press reported that Iraq, which halted exports Friday morning, said it would resume exporting its crude to honor contracts that had been signed under the United Nations- sanctioned oil-for-food deal. Saudi Arabia has agreed to cover 1.8 million barrels of Iraq exports a day, Kerr said.

Iraq had been demanding that customers pay a 50-cent per-barrel surcharge for its oil directly to an account outside of U.N. control. This would be a violation of U.N. regulations since the country has been under global sanctions after its 1990 invasion of Kuwait. Under those sanctions, payments for Iraqi oil are required to go directly into an escrow account in New York.

Early Friday, however, the Associated Press cited Iraq's official news agency as reporting that Baghdad was dropping its demand for the surcharge because it would make Iraqi oil noncompetitive.

-- (M@rket.trends), December 04, 2000.

Some related news....

News - Monday, December 4, 2000

Skyrocketing oil prices causing rush on wood in N.H.

CHICHESTER, N.H. (AP) — Many New Hampshire residents are turning back to wood to heat their homes as oil prices skyrocket.

But the price of wood is going up too, and it’s also becoming hard to find.

"The average price of a cord of wood now is $150 to $200, but everybody I know who deals in wood is out of it," said Robert Stamp, a salesperson at the Abundant Life store, where people have been snatching up wood-burning and gas stoves.

Heating oil last month averaged $1.58 per gallon - up from 98 cents per gallon last year - according to the Governor’s Office of Energy and Community Services. It’s expected top $2 per gallon before the heating season is over.

Stove sales took off last winter and boomed this fall when buyers began to worry that high oil prices may last. Others bought stoves as backup after the big ice storm of 1998 left thousands without heat, and in preparation for the Y2K disruptions that never happened.

"I have some friends in the logging business who say demand for firewood is up tenfold and they just can’t keep up with demand," Stamp told The Boston Sunday Globe.

According to a draft report of a survey conducted for the governor’s energy office this fall, 55.3 percent of New Hampshire households burn oil - a drop from 59 percent in the four years ago. About 10 percent of the 400 households surveyed burn wood as a primary fuel; 14 percent heated with natural gas, 10 percent with propane, 5 percent with kerosene and 4.8 percent with electricity.

About one-quarter of all households burn wood for at least supplemental heat, though more homes are equipped to do so.

Treehugger Farms in Westmoreland, a major firewood dealer in southwestern New Hampshire, raised its price this season for the first time in eight years.

"We only went up $5 in our area because this is a year-round business for us and people budget for their firewood. We also do a lot of fuel assistance business," said owner Donna Clark. Treehuggers will deliver one cord of seasoned wood for $135 and three cords for $385.

Clark has been getting calls from Lebanon, Manchester and other cities well out of delivery range. Some people show up with their own trucks or pulling trailers with their cars.

http://www.fosters.com/news2000/dec_00/04/nh1204i.htm

-- Cave Man (caves@are.us), December 04, 2000.