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Cold weather raises energy prices, fear of shortages Concerns about natural gas, heating oil add to California power crisis By Dina Temple-Raston USA TODAY

Energy prices soared Tuesday as colder-than-expected weather in the USA stepped up demand and fed concern that shortages can't be far behind.

Heating oil prices rose almost 7%, or 5.9 cents, to 93.7 cents a gallon on the New York Mercantile Exchange. That's the largest one-day gain since April 19. Natural gas for January delivery rose as much as 37.1 cents, or 3.9%, to $9.95 per million British thermal units. Natural gas has been trading at or close to record highs since mid-November. Last week, supplies of natural gas were 23% lower than at this time last year.

In recent weeks, energy traders have been focusing on natural gas, not heating oil, because many utilities need natural gas to fire their backup electric generation plants. The appetite for electricity has been so great that they have had trouble keeping up with demand, particularly in California. But Tuesday, the cold sweeping the Northeast shifted attention to heating oil.

''We're starting to see some real panic when it comes to the energy situation, particularly in natural gas,'' says Phil Flynn, oil analyst at Alaron Trading. ''There's a lot more winter to come.''

Two key inventory reports will set the stage for prices the rest of the week, analysts say. The American Petroleum Institute will release its weekly supply report today. The Department of Energy will give its own estimates on Thursday.

Traders expect today's figures will bear out what many fear: The cold snap has taken a bigger bite out of supplies.

Freezing weather, such as the Arctic blast that hit pockets of the country over the holiday weekend, feeds concern that supplies will run out. That drives up prices. Temperatures in Chicago were well below freezing on Tuesday, and the National Weather Service forecast lower temperatures all week in New York and Boston. That's bad news. The Chicago metro area alone accounts for nearly a third of U.S. residential gas consumption. The nation's largest market for heating oil is the Northeast.

Traders also have an eye on the growing power crisis in California. Two of the state's utilities, Pacific Gas & Electric and Southern California Edison, face more than $8 billion in losses because of soaring natural gas prices. Regulations prevent them from passing those increases on to their customers. More than $2 billion in short-term debt the two companies have issued comes due in the next two months, and analysts worry the companies may have trouble making the payments.

California Gov. Gray Davis met with Federal Reserve Chairman Alan Greenspan on Tuesday to discuss the power crisis as the two utilities brace for a possible credit-rating downgrade. Officials at the Fed and at Davis' office declined to comment on the meeting, except to say the two men discussed energy.

Traders also are keeping an eye on the Organization of Petroleum Exporting Countries, or OPEC. It could decide to cut production because crude oil prices, unlike heating oil and natural gas prices, have dropped 25% in the past month.

Venezuela President Hugo Chavez said Monday he'd urge OPEC members to agree to a supply cut. Venezuela, Iran, Kuwait and Libya have all called for reduced production. OPEC meets Jan. 17

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-- Martin Thompson (mthom1927@aol.com), December 28, 2000