High nat gas prices threaten U.S. refineries output

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High nat gas prices threaten U.S. refining output

Poster's note: Another inter-relationship between high nat gas prices and heating oil fundamentals

High natural gas prices threaten U.S. refining output

By Richard Valdmanis

NEW YORK, Dec 11 (Reuters) - A spike in U.S. natural gas prices, which has already battered consumers across the nation, could have a more wide reaching effect by cutting into oil refinery production, analysts said Tuesday.

This threatens to reduce the amount of gasoline and heating oil produced, despite low spare supplies and sky high prices.

Refiners, who typically use natural gas as a boiler fuel to power their plants, are already beginning to switch to cheaper liquefied petroleum gas (LPG) products like propane and butane in order to keep operating costs down.

But those products, derivatives of natural gas, are expected to become more expensive as well, leaving companies with no cheap alternatives and dragging margins in refining centers such as the U.S. Gulf Coast, into the red.

"The high natural gas prices could reduce refinery runs by a significant amount," said a source at a large Gulf refining company, who asked not to be named.

"The natural response of merchant refiners confronted with shrinking margins and increasing natural gas costs is to cut runs," said industry analyst Phillip Verleger in a report.

Natural gas prices on the benchmark New York Mercantile Exchange (NYMEX), have doubled since the start of November to a peak above $9 per million British thermal units -- quadruple the price at the start of this year.

The high prices for natural gas, combined with cold weather in the Midwest, have led to a spike in propane demand among consumers and refiners seeking cheaper fuels, and to the allocations of two major propane-carrying pipelines.

Although lagging behind the gas hikes, propane and other LPG prices are already near all-time highs after jumping 70 percent in the last six months with analysts warning the trend can only boost them even more.

GASOLINE, HEATING OIL SUPPLIES THREATENED

The No.2 U.S. independent oil refiner Valero Energy Corp. said that high natural gas prices have led it to use propane and butane at its California and Texas plants as a way to reduce operating costs.

Valero said it has not decreased runs. Many other companies declined comment.

A decrease in refinery production could mean another obstacle to healthy winter heating oil supplies in the Northeast and could spell yet another run up in gasoline pump prices this spring.

The use of butane as a boiler fuel can also reduce gasoline output at a refinery, since many producers use butane as a blendstock during the winter months. Valero said its gasoline output has not suffered.

Meanwhile, industry watchers are keeping a wary eye on refiners, especially in the Gulf Coast, where margins are already low and are under the greatest threat to rising operation costs.

Margins on the Gulf, which accounts for roughly half of U.S. production, were at break even in early December, but recovered slightly last week to $3.65 for every barrel distilled due to a slide in crude oil prices, according to Paul Ting, analyst for Salomon Smith Barney.

But "refining margins may weaken before staging a rebound" since last week's oil price drop is likely to have a short-lived effect, said Ting in his weekly report.

-- Cave Man (caves@are.us), December 12, 2000

Answers

http://pub38.ezboard.com/fdownstreamventu respetroleummarkets.showMessage?topicID=2140.topic

-- Cave Man (caves@are.us), December 12, 2000.

It's uncanny how these energy articles lately reverberate with those domino-effect worries we all had a year ago. boom-boom-boom and down they go.

-- cat (cat@scratch.post), December 12, 2000.

slams drink down on bar and exclaims "yeah and the friggin gas bills are going UP UP UP and I'm sick of dis shit."

Here in NE ohio we WERE deregulated, however, you CANT get into any other company for the price break because of the mobs of peeps tying up the phone lines.

Whats next? Well the lectric deregulation of course!!!!

Few choices and my bill is too damn high. I have a barbie and ken house and it costs a fortune each month to heat the damn thing.

Is it ME or haznt anyone else noticed?

-- sumer (shh@aol.con), December 13, 2000.


Major fertilizer plant is shutting down.

Natural gas prices soar into `uncharted territory'

By STEVE EVERLY - The Kansas City Star Date: 12/11/00 22:15

Natural-gas prices are reaching record heights that could send heating bills far higher than was feared even a few weeks ago.

Cold weather invading the Midwest is being accompanied by gas prices once considered unimaginable. The average wholesale price for natural gas in the Midwest rose about 35 percent Monday, to more than $11 per thousand cubic feet.

The spiking prices, which have doubled in the past month and are five times the levels of a year ago, are having an impact. Farmland Industries Inc., for instance, last week temporarily stopped fertilizer production at two plants because of high gas prices.

There also is growing concern that previous estimates of heating bills being 50 to 60 percent higher this winter are far too conservative.

"It's a very scary situation we are in and extremely troubling," said Walker Hendrix, counsel for the Citizens' Utility Ratepayer Board in Topeka.

Wholesale prices have jumped from a Midwest average of about $6.50 on Dec. 1 to $11.28 per thousand cubic feet on Monday. The average household is expected to use about 90,000 cubic feet of gas this winter.

Most households won't feel the brunt of this month's increases unless prices stay at these levels through the end of December. That's when most utilities, including Missouri Gas Energy and Kansas Gas Service, price most of the gas they will sell in January.

But if gas prices stay near current levels, the impact on consumers will be staggering. A gas bill that was $150 last January could be $350 or more next month.

"We're entering uncharted territory," said Paul Snider, a spokesman for Missouri Gas Energy.

Consumers wanting to save money should conserve natural gas by such techniques as turning back thermostats, caulking and weatherstripping windows and getting furnace tune-ups. Utilities also are still accepting customers in their level-payment or average-payment plans.

Even without this month's spike, consumers are getting sticker shock as November gas bills reach mailboxes. The bills have been made worse by higher gas prices and a colder November than last year.

Richard Ziemer of Overland Park paid $54 for gas he used in November 1999. This year his November bill plus two days in December totaled $159.

"I just about fainted," Ziemer said. "There has got to be some shenanigans going on."

For many large business customers, the effect of the past two weeks has been even more dramatic. Many of them buy substantial amounts of the fuel on the daily wholesale market. Even those companies that have fuel they had already purchased at a cheaper price are finding they can make more money selling the gas.

Farmland Industries is among the top 10 industrial users of natural gas in the United States because gas is used in making the company's fertilizer. It recently suspended production at plants in Louisiana and Oklahoma because of the higher gas prices.

"It's not economical to turn expensive natural gas into inexpensive fertilizer," said Rich Shuck, manager of natural gas for Farmland.

Monday's spike began early with news of a blizzard in the upper Midwest and forecasts of frigid air that would settle throughout the region, including the Kansas City area.

Facing concerns that the higher demand would stretch tight supplies, traders on New York Mercantile Exchange quickly bid up gas to above $9 per thousand cubic feet for January delivery.

Prices climbed even higher for wholesale gas for immediate delivery in the Midwest. Some natural gas in the Chicago area traded for as high as $14 per thousand cubic feet.

The energy crisis and some pipeline difficulties in California were also having some effect. Prices at the California border were about $45 per thousand cubic feet, and those were attracting some gas that would have been sent to the Midwest.

The price volatility has been unprecedented. On Monday morning, employees who follow gas prices for Kansas Gas Service watched as prices went above $10. They then had to scramble because their computers and forms were equipped with only enough spaces for three-digit prices under $10.

The good news, said Bill Eliason, the utility's vice president for gas strategy, was that there was no difficulty in meeting Monday's demand for gas. Missouri Gas Energy officials said they also were able to supply the gas customers needed.

Prices in coming days and weeks are hard to predict, Eliason said. But he hopes prices will decline if longer-range forecasts for more moderate temperatures turn out to be true.

"I think the market is going to recognize that $10 (gas) is more than necessary," he said.

A backlash may be brewing. The U.S. Senate's Committee on Energy will hold hearings today about the rise in gas prices. Among the questions: Why are they far higher than predicted just over a month ago?

"We're really trying to get a handle on what is going on out there," said Bryan Hannegan, the committee's staff scientist.

Hendrix, of the Citizens' Utility Ratepayer Board, said he expects more scrutiny of how utilities purchase the fuel they resell to their customers. Currently, he said, there is too much reliance on indexes that simply pass the market price on to consumers. Utilities may need to change their purchasing to protect consumers more against price spikes.

"No one wants to speak against the free market, but there is a downside to it," he said.

http://www.kcstar.com/item/pages/home.pat,local/3774fab2.c11,.htm

-- Cave Man (caves@are.us), December 13, 2000.


Cold weather invading the Midwest is being accompanied by gas prices once considered unimaginable. The average wholesale price for natural gas in the Midwest rose about 35 percent Monday, to more than $11 per thousand cubic feet.

^^^yep, mine is close to the 11.00 figure mentioned above, mine is 9.5 per mcf.

This SUCKS!!!!

Hello, anyone else experiencing this or just me and the cave dude?

-- sumer (shh@aol.con), December 13, 2000.



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