Price of Natural Gas Hits Boiling Point, Soars Past Cost of Oil

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Price of Natural Gas Hits Boiling Point, Soars Past Cost of Oil Monday, December 18, 2000 12:58 AM ET

DALLAS -- For the past year, industrial companies have complained loud and long about rising oil prices, The Wall Street Journal reported Monday.

But like the old joke about curing a headache by dropping a brick on your foot, some companies that have been pinched by high oil prices are now facing a far more painful reality: skyrocketing natural-gas prices.

Indeed, oil prices have eased in recent weeks, with prices falling to about $28 a barrel from about $35. On Friday, spot oil prices were quoted at about $28.88 a barrel.

Prices for natural gas, which is used to heat 61 million households and is a major source of energy for makers of chemicals, plastics and electricity, have jumped more than fourfold in the past year and are approaching $10 a million BTU. In California, prices have shot up to astronomical levels, with spot prices as high as $17 or $19 a million BTU. That's the equivalent of paying $120 a barrel of oil.

For consumers, the price boosts could translate into winter heating bills that jump 50% or more. Consumers will notice the impact of high natural-gas prices from the hardware store to the grocery store as natural-gas costs jack up the price of plastic products and packaging materials.

To some economists, the potential shock from escalating natural-gas prices could be bigger than anything the economy has seen in decades. During past energy shocks, says economist David Resler at Nomura Securities International in New York, "oil prices rose and most other energy prices remained low." But now, he says, consumers are facing a market where oil prices are high and natural-gas prices are even higher. In addition, he says, the rise in natural-gas prices "will have a much bigger impact on households than the rise in oil prices, because six times as many households use natural gas as use oil," Mr. Resler says.

Meantime, the price explosion has exposed just how vulnerable American manufacturers are to cheaper imports. "Eight dollar natural gas has turned U.S. petrochemical producers into the most expensive producers in the world," observes Gary Adams, president of consulting group Chemical Market Associates Inc.

© 2000 Dow Jones & Company, Inc. All Rights Reserved.

http://www.quicken.com/small_business/news/index-article.dcg?story=/news/stories/dj/20001218/on20001218000017.htm&department=1

-- Martin Thompson (mthom1927@aol.com), December 19, 2000


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