Natural gas jets past the $9 mark as blizzard blows prices to record

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Dec. 11, 2000, 10:00PM

Natural gas jets past the $9 mark Blizzard blows prices to record Copyright 2000 Houston Chronicle News Services

Natural gas prices hit yet another all-time high Monday, closing at $9.413 per thousand cubic feet on the New York Mercantile Exchange.

That represented an 83-cent increase from Friday's close as a blizzard socked the Midwest and forecasts predicted bitter cold for at least the next few days.

The soaring prices could almost immediately show up as unwelcome increases in consumers' winter heating bills, analysts said.

Phil Flynn, vice president and senior energy analyst at Alaron Trading Corp. in Chicago, said a storm that was expected to dump up to a foot of snow on Chicago raised fears that utilities may not have enough natural gas stored up to get through a harsh winter. Natural gas heats 90 percent of Chicago-area homes, he said.

Cold weather in the Pacific Northwest also has contributed to the rise in prices, he said.

"It's more of a psychological situation than a real situation right now," Flynn said. "I would expect that the first big break in the weather will bring a break in the market."

Another factor in Monday's gains was federal regulators' approval Friday of plans to lift price caps on wholesale California electricity to ease that state's power crunch, Flynn said. The order means the $250 per-megawatt-hour limit for wholesale electricity can be exceeded if the sellers can justify the costs.

Natural gas, once thought of mainly as a source for winter heating, has become a year-round fuel used to generate the electricity that powers air conditioners and computers. But that rise in use has not been accompanied by an equal growth in capacity, meaning the resource is in short supply.

Weekly data released last week by the American Gas Association showed a draw of 73 billion cubic feet from U.S. inventories of natural gas.

The decline was not as severe as some traders had feared but still has been driving prices higher because supplies are lower than year-ago levels.

In an indication of how expensive natural gas has become, some companies have decided they can make more money selling their natural gas than selling products using natural gas.

Two fertilizer manufacturers, Terra Industries and Mississippi Chemical Corp., said Monday they were selling natural gas that normally would go to make nitrogen, ammonia or other products.

And oil company Seneca Resources Corp. said gas normally used to boost heavy oil production in a California field would be sold instead.

Terra, based in Sioux City, Iowa, said it closed one of two ammonia plants in Verdigris, Okla., and its Blytheville, Ark., plant this month, so it could sell the natural gas used by those plants.

It is profiting about $2 to $3 per thousand cubic feet on the gas it is reselling.

On Nov. 30, Terra said it was closing its Beaumont plant because it couldn't make a profit at current gas prices.

Mississippi Chemical said it was selling all its futures contracts for natural gas to lock in the current prices. It said it would post a $16 million pretax gain by selling the gas contracts.

Seneca Resources, based in Buffalo, N.Y., said Monday it would sell the natural gas it had been using for its steam injection project at a California oil field. It expects to post a pretax profit of about $31,000 a month, it said.

Mark Palmer, spokesman for Houston energy company Enron Corp., said the arrival of cold weather and the sharply higher natural gas prices have brought more companies to its doors asking for help in managing their energy costs.

"Volatility is good for us," Palmer said.

Meanwhile, analyst Brian Prokop of Peters & Co. said natural gas prices are soaring in the Northwest partly because of a lack of Canadian pipeline capacity to carry gas to California and nearby states.

Canadian natural-gas producers have packed pipelines as prices have risen 12fold from a year ago.

Wesucoast Energy, the leading shipper of gas from Canada to the western United States, has filled its pipelines to capacity, spokesman Bob Foulkes said.

"They're maxed out, absolutely," Calgary, Alberta-based Prokop said.

"It's not a matter of while the price is high the market's going to balance it off by putting more supply there. This is all the supply there is, and now they're competing for it."

Alberta supplies about 15 percent of U.S. gas demand.

Pipeline construction to the western U.S. has lagged in the past decade because of low prices.

http://www.chron.com/cs/CDA/story.hts/business/769579



-- Carl Jenkins (somewherepress@aol.com), December 12, 2000


Moderation questions? read the FAQ