http://news.excite.com/news/r/001211/15/energy-natgas-prices

U.S. natural gas prices start the week with a bang

Updated 3:41 PM ET December 11, 2000

By Joseph Silha

NEW YORK (Reuters) - U.S. natural gas prices started the week with a bang on Monday, spiking almost 15 percent as another arctic front hit the Midwest and threatened to further trim already-low gas inventories, analysts said.

A very cold November forced historically high drawdowns from storage last month, setting the stage for a tight scenario this winter that will mean record heating bills for consumers.

The bitter Midwest freeze drove New York Mercantile Exchange (NYMEX) January wholesale prices up more than $1.25 to an all-time high of $9.86 per million British thermal units (mmBtu) in after-hours trading last night.

"We could see some very sharp spikes in gas prices (at Henry Hub) this winter, perhaps to the $60 area or higher," said Pierre Conner, vice president of equity research at New Orleans-based brokers Hibernia Southcoast Capital Corp.

Henry Hub in Louisiana is the benchmark delivery point for pricing most wholesale U.S. natural gas.

Conner said a normal winter could pare U.S. gas inventories by end-March to 640 bcf or lower, a level likely to support prices right through next year.

"People are starting to project where storage will drop to (by end-March), and they're getting concerned about next winter's inventories," he said, adding wholesale prices in 2001 could average $4.50-5.00 per million British thermal units.

Hub prices this year will average a record $4.00, up sharply from the $2.35 level seen in 1999.

While the January contract eased slightly from a morning high of $9.45, the combination of tight supplies, a chilly autumn and forecasts for a cold winter have more than doubled the contract's price since November 1.

COLD SPELLS HIGH PRICES

"Everything has lined up this year, and it's not going to change overnight. We have low inventories, demand will continue to grow and production is not really increasing," said Fadel Gheit, a senior energy analyst at Fahnestock & Co. in New York.

U.S. gas stocks stand at about 2.4 trillion cubic feet, or 17 percent below last year and 12 percent below the five-year average, according to the latest data from the American Gas Association (AGA), a trade group.

Traders said they expect another big decline in Wednesday's weekly gas inventory report, perhaps in the 150 billion cubic feet range which would further widen the deficit to last year.

Analysts blame low oil and gas prices in the late-1990s for a collapse in drilling, leaving suppliers struggling to meet the 2-3 percent annual demand growth nationwide, primarily from new gas-fired power generators.

And despite expectations for rising Canadian imports and signs increased exploration was starting to pay off, they said the bulk of any supply gains will come too late to rescue consumers from the coming price shock this winter.

"The colder the weather, the higher prices will be, and certainly, we could see spikes (at Henry Hub) as high as what we're seeing in California," said Fahnestock & Co.'s Gheit, referring to recent prices in California in the $50-60 area.

"Consumers haven't even seen the (recent price) increases yet. They're going to find a very big bill from their local utility under the Christmas tree this year," he said.

In a report released last week, the U.S. Energy Information Administration (EIA) said winter heating bills will be up more than 60 percent for the nearly 56 million homes, or about half the single homes in the country, that heat with gas.

EIA also said U.S. consumers can expect to pay a record $834 to heat their homes with gas this winter, up from last year's average of $540.

Residential gas prices from October to March are expected to average a record $9.20 per thousand cubic feet, up almost 40 percent from last year's $6.61 average, the report said. ^

REUTERS@

-- (it's@getting.cold), December 11, 2000