MIDWEST NATURAL GAS PRICES MAY REFLECT CALIFORNIA WOES

By Melita Marie Garza Tribune Staff Writer January 25, 2001

The California energy crisis may be playing a role in sky-high Midwest natural gas prices, experts told the Illinois Commerce Commission Wednesday.

Although California's well-publicized power woes are focused on high electricity prices, the Golden State's problems are linked inextricably to natural gas. The reason: Almost half of California's electrical generating capacity comes from natural gas-fired plants.

This winter's higher natural gas prices, in fact, are a prime component of the higher prices for electricity in California. Low rainfall has put a dent in California's supply of hydroelectric power, making the state more reliant on natural gas.

And, say experts, some gas intended for other markets, including Chicago, has been siphoned off to meet California's need.

"If gas can flow to the highest-price market, it will, and it will affect markets in the rest of the country," said Cynthia Albert, vice president, regulatory affairs for CNS Energy Panhandle Pipe Line Cos.

"The natural gas pipelines serving California are obviously full," Albert said. "They are moving as much gas as they possibly can."

Albert was among experts who testified Wednesday as part of the ICC's investigation of the state's high natural gas prices. And she wasn't alone in her opinion that the California crisis may be siphoning off needed gas.

Donato Eassey, an energy stock analyst for Merrill Lynch in Houston, was unequivocal about the fallout from California's power crisis.

"I think it has had an impact on gas prices nationally," Eassey said. "There's no doubt about it. You are going to pay one way or another."

The Chicago market, say Albert and others, still is receiving adequate supplies of gas to meet the demands of consumers. They say this is primarily because of the opening last month of the Alliance pipeline, a new producer-built pipeline that is bringing gas into the Chicago market from Canada.

Some 1.3 billion cubic feet of natural gas is being piped through Alliance each day, she said.

Nonetheless, Albert said her firm was commissioning a study to determine how diversions of natural gas to California may be affecting the market.

"Gas is in fact going west," Albert said. "We are not filling up our mainline pipeline, which is the first time we've seen that happen in a cold winter like this."

Albert added that she was talking about a relatively small amount of natural gas going towards California on her company's pipeline. The Panhandle Eastern pipeline on a peak day transports roughly 2.5 billion cubic feet. In contrast, the amount going to California is about 200 million cubic feet a day.

"I think there is competition for the supply we haven't seen before," Albert said. But she noted that she had no idea how much natural gas other pipeline companies were shifting toward California.

"I don't have data on what this means for the Chicago price," Albert said. "Chicago is still getting a good price" compared with other places, where prices are just as high or higher.

http://www.chicagotribune.com/business/printedition/article/0,2669,SAV-0101250378,FF.html

-- Martin Thompson (mthom1927@aol.com), January 25, 2001