Natural Gas: The Five Stages to Market Panic by Ilan Goldman Oil Crisis News from Around the World

 Aug. 10, 2000  SolarQuest. iNet News Service  (This report by Charles T. Maxwell, Senior Energy Analyst (maxwell@weedenco.com) was posted by Ilan Goldman.)

The low natural gas reinjection numbers we have seen so far this spring in the US tell their own tale. We are not on our way to putting three trillion cubic feet of gas, or anything like it, into storage for use next winter. From a low of one trillion cubic feet (and nearly 50 % of that is facility and line "fill", i.e., is not usable), we would be fortunate now to bring stored supplies up to 2.3 Tcf by early next November, the start of the gas consuming season. Given the presumed retreat of the La Niqa weather pattern, the strong US economy, and the substantial number of new natural-gas-fueled base-load generating plants using combined-cycle technology coming on stream over the next six months, I have had to revise my estimate for peak gas storage down a bit from the 2.5 Tcf number I was using two months ago.

In practical terms, unless the coming winter approaches the highly-unusual, +13% warmer-than usual season we have just passed through, US gas storage numbers are accumulating in a potentially disastrous pattern of insufficient gas to take this country through the full span of cold weather to April of 2001. There is the possibility that we will be forced to allocate gas supplies to private homes, government departments and public institutions, to defense installations and to schools, universities, hospitals, and so on. To the degree that is necessary, gas will have to be allocated away from manufacturing industry.

Hit hardest, in such a period, would be sectors of the economy that use a high proportion of natural gas in their fuel mix such as cement plants, glass works, heat-treating and metal-shaping plants, heavy chemicals, steel, copper and aluminum makers, and so on. Subsequently, problems of insufficient production of component parts and intermediate materials could quickly spread to car and aircraft manufacturers, commercial construction and machine assembly industries. In short, the use of natural gas is so widespread in our manufacturing system that shortages of it for, say, a two month period from late January of 2001 to late March would wreak havoc on many areas of our economy.

It would surely slow national GDP growth, and heavily penalize the profits of many industrial firms. However, all this is theoretical. It really couldnt turn out this way, could it? Yes, it could. And, unless the trends I see in place now of close to 3% incremental natural gas consumption in the US vs. flat or slightly down natural gas production are reversed for some reason I cannot now perceive, the "disaster scenario" outlined above must be considered the most likely one.

Perhaps the most intriguing part of the emerging outlook for a shortfall in gas supplies is not the fact that the crisis has arrived (after all it has been predicted for years, and, up to now, nothing serious has occurred), but rather the point that we are advancing deeper and deeper into this energy problem and no one, other than a few Wall Street analysts, are making any warning noises about it. The media is quiet.

It is either non-believing or unimpressed by the dimensions of what is visible. Government, at all levels, is complacent. There are no public outcries even from executive figures in gas consuming industries that are heavily dependent on the fuel. We are becalmed in a sea of silence on this issue as we pass into summer. The weather is fair, and the "livin is easy". And, when winter comes? Its just another season, following summer. Nothing to worry about.

However, a few important people in the system quite plainly see the outlines of what is to come. Their traders are bidding up the price of natural gas dramatically (now 100% higher than the last years $2.10 per mm btu price at this season) in order to secure supplies for storage now - supplies that may not be available next February when many industries could be facing downtime. These gas buyers are doing their homework. And, it is their lead that investors should be following.

Still, I am ahead of the story in my surprise that the media has not yet picked up on the coming crisis. For over the years (and I have a good many of them), it has been my experience that there is a repetitive cycle to how these "threats" to the system are understood and acted on by different parts of our society.

In the case of the emerging shortage of natural gas, to take the example before us, the first group to identify it was the industry specialists (apart from many natural gas production company managers who had spotted it years in advance), in particular a small group of Wall Street analysts who were doing their weekly storage sums and saw that behind the fagade of last winters warmth was a highly worrisome picture of an industry failing to convert its greater effort to find supplies (some 650 rigs drilling for gas this year vs. some 380 drilling for gas last year at the same time) into rising output figures. Across the board, analysts in the oil and gas industry are now convinced there is a substantial problem ahead.

This is Stage One, and it is nearly completed.

Stage Two is the tricky one. Analysts must convince their portfolio people that the problem is real, and direct them to what areas of the market to buy and what to avoid to maximize investment returns. But, portfolio managers are resistant to these arguments (they have heard them before) . So, only a few comprehend and accept the fundamental story, then take action. But, those brave souls start building upward momentum into the limited group of gas producing stocks that can be bought in size by the institutions (APC-53, BR-45, UCL-38, APA-60, DVN-60, and EOG-32, in order of descending capitalization) . Then, that section of institutional portfolio managers which cannot yet grasp the play itself but which is attuned to moving into stock groups with rising upward momentum in the market (for whatever reason), can be expected to swing onto the story. In this case, the natural gas producing group has recently come up on everyones charts as being in the lift-off stage.

Finally, the remaining portfolio managers, still not convinced, are forced to act in order to maintain their performance rankings, and they belatedly enter the game.

We are better than halfway through Stage Two now, as I make it out. The fundamental players are "in", and the momentum players are starting to react. But, as to a general capitulation of portfolio managers to the natural gas shortage concept, that will be reserved for quarter-ending rallies in June and September yet to come, if I am reading the tea leaves correctly.

As I have previously noted, the media have not yet focused on this problem. That will be Stage Three.

There is a substantial story to tell here. Outages in industrial plants across (mainly) the Midwest and Northeast, with tens of thousands of workers staying home, is a major development. When TV reporters, newspapers and magazines eventually pick up the trend, perhaps several months will have passed and the situation may well be seen as more grave. Having professionally worked through the period of Energy Crisis I and II, it would not surprise me if the media termed the new "threat" as Energy Crisis III.

However, I dont think that this natural gas problem will have the public impact of the first two crises. Lack of gasoline (read mobility) and long waiting lines to obtain it may be more effective in influencing the American psyche than 100 industrial plants being shut down. However, Energy Crisis III is a convenient name, and at least it has the advantage of catching peoples attention. Stage Three is a big step in the development of a crisis mentality in the market for gas-related stocks. But, we are not yet into this stage.

On the basis of widespread (future) media attention, Stage Four would involve governmental reaction to this, on all levels. By late summer and early autumn, we will be into the late days of the Clinton Administrations time in office. It certainly could be a political problem to admit that something this important had been allowed to develop, unbeknown to all, into a significant threat to the system.

On the other hand, the issue cannot be easily swept under the carpet because its effects are too close to breaking through into public consciousness. Moreover, the Gore-Bush pre-election debates should be in full swing by then, and Bush would be well guided to raise points, such as this, in which he has had some practical experience and for which no anticipatory consideration has been made in the non-existent national energy plan that President Clinton never formulated (nor did any other previous US president). As I see it, the Government will be forced to confirm the size and scope of the gas problem, and will further alarm industry by referring to the possibility of gas allocation on a national, state or local level.

Stage Four could well occur in September and October of this year. Its outcome would logically lead to Stage Five, the final rush to panic and overexposure. This would be the result of heightened media attention, followed by effective governmental confirmation that the problem was real and might not be easily fixed except through significant sacrifices on the part of the public. Stage Five would represent a general recognition that we could be entering a difficult period of fuel shortages and that the effects might be more serious than mere "inconvenience". It should be noted that under any allocation formula, those organizations and industries that could switch from natural gas to propane, butane, heating oil or residual fuel oil would be asked to do so. And, subsequently, these products might themselves run short under the impact of unexpectedly high demand. They might also advance dramatically in price.

Stage Five would also imply a highly visible case for investing in companies that might be best positioned to assist in solving the natural gas shortage. The final run of small investors funds into the natural gas producers might represent a "tsunami" of money seeking entry to a play already suffering from limited capitalization, thus forcing gas producer share prices into the "blue yonder".

Stage Five, perhaps occurring in mid-to-late autumn, would, of course, be immediately followed by the actual onset of cold weather. By then, investors would also have full knowledge of the countrys three-quarter-filled gas storage position. Early outages might start to occur, for coincidental reasons, in late January of 2001. However, the main weight of the shortfall would be expected to fall when different major storage points in various consuming regions of the country ran out of supplies in February and March of next year. That is when companies, facing closedowns for lack of fuel, should be most pressured to bid for gas to avoid the termination of output and temporary disbandment of their labor forces. So, we have assumed a peak to natural gas prices in February of 2001, probably in the $6.00 - 7.00 per mm btu range following a prolonged period of cold weather.

This could be the high point of fear, when many businesses could be driven to uneconomic decisions just to survive.This would logically be the exit point for experienced investors. With all five stages of the play completed, and the axe of cold weather fallen, this would be the time to collect your chips and leave the game. Conditions will likely not be so desperate or so uncertain again for some time, experience teaches us. Of course, the natural gas problem itself will not suddenly go away. It will take many seasons to find an answer to it. But, we will solve the problem, as we always do. And, as we move through the crisis and consider our options, all kinds of answers will present themselves. Meanwhile, the stock prices of natural gas producers would be expected to start down as early desperation gave way to later resolution.

What will be the eventual answers to the natural gas shortfall? Think about a higher range of prices, application of additional technology, new generations of sophisticated drilling rigs, more LNG receiving terminals, and what can come south from Alaska.

http://www.hubbertpeak.com/news/article.asp?id=1122

-- Cave Man (caves@are.us), August 24, 2000

Answers

YEAH RIGHT. This clown is running out of time. He predicted his stages and Sept-Oct. is right around the corner.

MORE BULL SHIT FOR THE BRAINLESS.

PRICES ARE WHERE THEY ARE BECAUSE THE USA CAN AND **HAS TO PAY**.

After the squeeze results in too much pain, the prices will go down.

-- cpr (buytexas@swbell.net), August 24, 2000.

I can see now why there's such a difference in opinion on energy issues. Cpr doesn't care about the homeowners, businesses or the economy which at this point may have to bear "too much pain" this winter. All Cpr cares about is his intellectual superiority.

Being wealthy and living in a warm state cushions *you* from pain, Cpr, but those not as fortunate try to stay informed and act early if it seems appropriate. Let me point out to you in a civil way that you said back in March that OPEC at that point had found the "price of pain" and were already backing off.

You were wrong.

-- Intelligence is not the same (thing@as.wisdom), August 24, 2000.

(snip)

If further disruptions or heavy demand drain dwindling stockpiles further, rationing and industrial shutdowns are ``a pretty good possibility'' this winter, especially involving natural gas, says analyst Michael Lynch of WEFA, an economic think tank in Bedford, Mass.

Edward Kelly of Cambridge Energy Research Associates in Houston stops short of predicting such an energy crisis. But he says the market is the most vulnerable it's been since energy deregulation two decades ago.

``It's the worst situation since at least the early 1980s,'' he said. ``It's been difficult ... to store enough gas for this winter.''

(snip)

http://biz.yaho o.com/apf/000824/heating_co.html

-- Cave Man (caves@are.us), August 24, 2000.

Natural Gas Futures Rise to All-Time High

Dow Jones Business News

A WSJ.com News Roundup

NEW YORK - Concerns about winter supplies and rising oil prices sent natural gas futures on the New York Mercantile Exchange to a record high Tuesday.

Crude-oil and petroleum-product futures also rose Tuesday amid signs that an expected rise in output by the Organization of Petroleum Exporting Countries won't be enough to contain prices. However, profit-taking had trimmed the gains by midday.

At midsession at the New York Mercantile Exchange, December natural gas was up 10.5 cents, or 2.1%, at $5.08 per million British thermal units. Earlier, the contract hit an all-time high of $5.09 for a Nymex natural gas contract.

Natural gas futures prices have doubled this year, and further gains are likely, analysts said.

"You can easily see another 20 cents to 30 cents," said Gerry Saccente, a vice president with ABN AMRO in New York. "There's nothing holding against it."

With only eight weeks to go in the storage season, natural gas inventories are running about 10% below their five-year average level and are expected to finish the season about 13% shy of the 3.0-trillion-cubic-feet industry target for the beginning of winter, analysts now say.

Natural gas futures aren't likely to weaken until gas inventories begin to grow more quickly and ease concerns about heading into the winter peak-demand season with insufficient supplies, said Kyle Cooper, an analyst with Salomon Smith Barney in Houston.

Meanwhile, demand from power generators is being stoked by summer heat in the South and in Texas, which will cut into storage growth in those key production areas, Mr. Cooper said.

High prices for Nymex crude oil futures are also supporting natural gas futures prices, analysts said.

Also at the Nymex at midday, October crude oil traded up 25 cents at $33.63 a barrel. October crude futures jumped 74 cents in overnight trading to post a new high at $34.10 a barrel, the highest level since March 8, and approaching a 10-year high. November crude gained 34 cents, or 1.1%, to trade at $32.76 a barrel.

Analysts said an expected 500,000-barrels-a-day production boost from OPEC ministers, who will meet in Vienna on Sunday, won't be enough to cap prices.

Under a price-band mechanism established earlier this year, OPEC agreed to increase its production by 500,000 barrels a day if prices stay above $28 a barrel for 20 days. On Monday, the basket price rose to $32.13 a barrel, the 16th straight day it has remained above $28.00 a barrel. Barring a dramatic drop in prices, the 20-day mark could be Friday, just two days before the semiannual OPEC meeting.

Some analysts have argued that Saudi Arabia, OPEC's biggest producer, may push for a greater output increase at the meeting, which they say is needed to stop the recent run-up in prices.

OPEC faces growing pressure from consuming nations to increase output to ease near 10-year high prices fueled in large part by U.S. oil inventories running at 24-year lows. Analysts and OPEC sources say at least a 700,000 to 1.5 million barrels-a-day increase is needed.

Despite raising its output quotas by about 2.5 million barrels a day this year without succeeding in driving down prices, most OPEC producers remain opposed to a large production increase for fear that it could cause prices to crash.

Instead, OPEC officials have blamed market speculation, refinery bottlenecks and high fuel taxes in consuming nations for the recent run up in crude prices.

On Monday, OPEC President Ali Rodriguez was reported as saying that while a boost in oil production is necessary, he doesn't think it will be enough to stabilize the world oil market. Mr. Rodriguez also urged consuming nations to do their part in bringing down taxes to lower world oil prices.

Among petroleum products, October gasoline edged up 0.10 cent to 95.95 cents a gallon. October heating oil added 0.31 cent to 97.95 cents a gallon.

Sunoco Northeast Refining's fluid catalytic cracking unit at its Marcus Hook, Pa., oil refinery restarted Saturday night and is on its way back to full capacity, a company spokesman said Tuesday.

The spokesman couldn't say exactly when the unit would hit its full capacity of 93,000 barrels-a-day. The unit shut Thursday after a power outage caused a fire on the unit.

http://dowjones.work.com/index.asp?layout=story_ind_news&vertical=Ener gy&industry=Oil+%26+Gas&doc_id=6360

-- Cave Man (caves@are.us), September 05, 2000.

it record high

Wednesday, September 6, 2000 By Michael Davis, Houston Chronicle

Blistering heat in the United State's midsection sent natural gas prices to record highs Tuesday.

The price run-up reflected surging demand for gas from utilities producing power at peak levels to, among other things, run air conditioners.

Consumers in Houston and other parts of the country are likely to be paying more for natural gas and power year-round because summertime natural gas use is growing.

Gas prices now peak twice a year, during the coldest and hottest times, and utilities are ratcheting up fuel surcharges to reflect this trend.

The heat wave is putting added pressure on natural gas prices that were already rising due to fears that the nation will not have enough gas in storage this winter to meet demand.

Natural gas on the New York Mercantile Exchange traded Tuesday for the highest price in the 10-year history of the natural gas futures market.

The October contract closed at $4.95 per thousand cubic feet  the highest near-month contract ever. The December contract closed at $5.10 after reaching $5.11  the most expensive natural gas contract ever seen on the Merc.

Reliant Energy HL&P and Reliant Energy Entex, Houston's electric and gas utilities, have both increased their fuel-charge adjustments in the past two months to pass on higher natural gas costs.

HL&P bills are estimated to be about 12 percent higher than at this time last year because of fuel fees. Entex bills will run about 20 to 25 percent higher this winter, depending on how cold it gets.

HL&P experienced its all-time demand Tuesday: 15,454 megawatts. The previous record was last Thursday's 15,311 megawatts. On Labor Day, when the temperature hit 109, demand peaked at 13,864, said Leticia Lowe, spokeswoman for HL&P. Business demand is lower on holidays, she noted.

Weekly storage figures from the American Gas Association that will come out today will signal which way prices will move in the near term. The price rise Tuesday suggested that many traders are betting that gas prices will rise because less gas has been added to storage than was expected.

Typically, the industry likes to have about 3.1 trillion cubic feet in storage by Nov. 1. This year, the nation will be lucky if it reaches 2.6 trillion cubic feet, said Charlie Sanchez, energy markets manager for Gelber & Associates in Houston.

Concerns over winter storage levels will likely keep prices high regardless of short-term developments such as a heat wave.

"We could easily hit $5.25," he said. "This is a patient market, not like when we hit $4 and there were 40- to 50-cent price swings in a day. People seem to be comfortable with gas in the $4.50 to $4.90 range now."

A normal winter could significantly increase gas bills. The mild winters the area has experienced in the last three years have kept gas bills lower than usual.

"If we have any sort of winter, and demand is up substantially over last year, bills could be 30 to 40 percent higher," said Wayne Stinnett, executive vice president for support services at Reliant Energy Entex.

The heat wave has not had an immediate impact on Entex's demand since its gas is not burned to produce power for air conditioning.

"You might not have to heat up your hot water as much, though," Stinnett joked.

Houston's weather is expected to cool a little later in the week, but as long as dry conditions persist in Texas and elsewhere in the plains, temperatures will stay high, said David Salmon, a meteorologist at Belton, Mo.-based Weather Derivatives. The company tracks weather for the energy and agricultural industries.

"With the ground as dry as it is, as soon as that sun hits it, it starts heating up like a parking lot," Salmon said. Last week, Houston was 46 percent hotter than normal and Dallas 61 percent above normal, Salmon said.

The best solution to the heat wave, Salmon said, would be a "good, old-fashioned hurricane."

"That's not what people in Houston want to hear, but it's a fact," he said.

Natural gas prices have not caused much of a stir in political circles, but with prices breaking new ground almost every day, that's beginning to change.

Alaska Gov. Tony Knowles and Ohio Gov. Bob Taft are holding a meeting today in Columbus, Ohio, on the "natural gas crisis." Politicians, regulators and executives of energy companies will be discussing natural gas markets.

Page | 1 | 2 |

Copyright 2000, Houston Chronicle Distributed by Knight Ridder/Tribune

-- Cave Man (caves@are.us), September 06, 2000.

Winter fuel hits new high

http://www.msnbc.com/news/456588.asp?cp1=1

-- Cave Man (caves@are.us), September 07, 2000.

San Diego just saw their electric bills DOUBLE over the last few months and the local economy has suffered greatly as a result. With the increased cost of natural gas hitting within the next few months, the region will become an economic DISASTER. People simply cannot afford these higher prices, cpr, so please get your head out of your ass and think carefully before spewing your dribble. Better yet, try doing some research re: San Diego to "enlighten" yourself with the way the Real World works.

BTW - the electric prices did NOT come down as you claim will happen with natural gas. It took the legislature to enact a rate cap to provide the consumer with any economic relief.

-- GetReal (ItsTheEconomy@stupid.com), September 07, 2000.

Politics News - updated 4:44 PM ET Sep 11 Add to My Yahoo!

Reuters | AP | Elections | ABCNews

Monday September 11 2:46 PM ET Congressional Hearing Planned on Energy Prices

WASHINGTON (Reuters) - A day after OPEC's new production hike failed to slow rising oil prices, Congress summoned Clinton administration officials on Monday to Capitol Hill to explain what the government plans to do about soaring energy costs.

The House Government Reform Committee asked Energy Secretary Bill Richardson and Federal Energy Regulatory Commission chairman James Hoecker to testify on energy prices at a Sept. 21 hearing.

Business owners that are affected by higher energy costs are also scheduled to testify.

The hearing will look at rising oil, gasoline, heating oil, natural gas and electricity prices, according to committee chairman Rep. Dan Burton, an Indiana Republican.

``With winter just around the corner, and energy markets in turmoil, families and business face serious financial consequences,'' he said in a statement.

Oil prices rose by more than $2 a barrel to new 10-year highs in New York on Monday, after traders rejected OPEC's latest output increase of 800,000 barrels per day (bpd) as inadequate to replenish petroleum stocks and lower oil product costs.

Heating oil and natural gas prices are forecast to rise as much 55 percent this winter from year ago levels, according to the Energy Department.

Some lawmakers have asked the Clinton administration to release oil from the Strategic Petroleum Reserve in order to lower energy prices.

An Energy Department spokeswoman said releasing oil from the emergency stockpile remains an option for the administration, but President Clinton will have to make that decision.

``We've got very low oil home heating oil stocks, so we've got some things that we're considering that we may do in furtherance of this,'' White House Chief of Staff John Podesta said on Sunday, without being specific about the administration's options.

http://dailynews.yahoo.com/h/nm/20000911/pl/energy_congress_dc_1.html

-- Cave Man (caves@are.us), September 11, 2000.

Winter's shadow getting darker: Gas rates to rise Source: The Providence Journal Publication date: 2000-09-09 Arrival time: 2000-09-12

PROVIDENCE - And the price of natural gas is going up, too.

With dark predictions of another expensive winter for people who heat with oil, the state's two suppliers of natural gas are offering no relief.

Both Providence Gas Company and Valley Resources Inc. have asked the state Public Utilities Commission for approval to raise rates 23 percent and 16 percent respectively, beginning Oct. 1.

Thomas Massaro, the commission's chief financial analyst, says the requested "gas-cost charge" reflects increases the companies must pay their gas suppliers.

Such "pass through" requests are usually granted by the commission, Massaro said. But the commission will hold hearings later this month to hear the companies' detailed explanations of how they arrived at their figures.

"It is a situation that every gas utility is in," Massaro said. "Look at the price of [gasoline]. Look at what's happened to the price of oil. There are a lot of reasons why, but mainly people are saying the supply isn't there."

Providence Gas has about 160,000 Rhode Island customers, most of whom are residential customers.

For the average Providence Gas customer, who pays about $1,000 a year for gas, the company's proposed 23-percent rate increase will mean an additional $230, said spokesman James Grasso.

Valley Resources Inc., of Cumberland, has asked for a 16-percent rate increase. But the company filed its request in July, said Massaro, when prices were lower. Valley will likely request a supplemental rate increase later, said Massaro, to make up the difference.

Why the increase?

Says Grasso: "The Department of Energy has said that gas prices have doubled since last year because of a fall-off in production, short supplies and high demand by industry and electrical utilities."

More power plants are coming on line and choosing to use natural gas, Grasso said. "So when you put all those things together, it's a matter of supply and demand."

The rate hike will probably be more shocking to Providence Gas customers, who have enjoyed steady rates for the last three years.

In 1997, Providence Gas entered into a three-year agreement with a supplier, which locked in its cost of gas at $2.20 for each 1,000 cubic feet.

The wholesale cost today is more than double that, says both Massaro and Grasso.

"The market conditions are different now," Grasso said. "It's very difficult to get a gas supplier to lock in at any price right now because of the volatility on the market."

Energy prices are approaching their highest levels in 10 years, a concern that on Thursday prompted a meeting of the New England Council and the New England Governors' Conference.

The news wasn't good. Massachusetts Gov. Paul Cellucci said New Englanders are likely to pay more for oil this winter than last winter, when prices skyrocketed.

A typical Northeast homeowner paid $518 for heating fuel two winters ago and $765 last winter. That same customer should expect to pay more than $900 this year, said one U.S. Department of Energy official.

The Energy Department is projecting that oil prices will average $1.32 a gallon for the winter. In Rhode Island, prices are already at $1.44 a gallon, according to a state Energy Office survey completed earlier this week.

Natural gas prices have also risen to record levels because large industrial customers who have the ability to use oil or natural gas have stopped using oil. That has driven up the demand for gas.

At Thursday's meeting, Thomas Kiley, president of the New England Gas Association, said the region would have enough gas to meet heating needs this winter, but it will be expensive.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=13699454&ID =cnniw&scategory=Energy%3ANatural+Gas

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

NatGas rises - Inventories too low

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Bloomberg%20Energy&touch=1 &T=energy_news_front.ht&s=AOb.nmBWETmF0dXJh

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

Natural-Gas Producers Struggle to Meet Demand as Prices Continue to Surge

Dow Jones Business News

NEW YORK - As supply concerns keep oil prices above $30 per barrel, the tightest natural-gas market in years has sent prices of the other fossil fuel to dizzying heights of its own in recent sessions, Thursday's Wall Street Journal reported.

Natural-gas producers have been ramping up production all summer, throwing mothballed drilling rigs and offshore platforms back into service and pumping up budgets for natural-gas exploration and production. But those efforts look like they may be coming too late to help consumers this winter.

The companies that contract drilling rigs and equipment for natural-gas exploration and production are reporting soaring utilization rates. According to Baker Hughes Inc. (BR), a Houston oil and gas services company, there were 808 rigs drilling for natural gas last week, up from 561 at the same time last year.

Still, production isn't keeping up with demand. Budgets for finding and producing natural gas were sharply pared back as energy prices fell in the last two years. With prices high again, companies can afford the cost of finding and pumping more gas, but they can't get to it fast enough. They are also running into labor shortages on the gas fields of Texas and on drilling platforms in the Gulf of Mexico.

Meanwhile, a closely watched cushion of stored inventory reported by utility companies each week is about 15% below where it was this time last year and 9% below a five-year average for the season. That has worried many -- traders in futures pits more than most -- that the country is facing an imminent natural-gas squeeze.

Late Wednesday, the front-month future contract was at $5.055 on the New York Mercantile Exchange, up from $5.008 Tuesday. That is more than double its price at the start of the year.

http://dowjones.work.com/index.asp?layout=story_ind_news&vertical=Ener gy&industry=Oil+%26+Gas&doc_id=7775

-- Cave Man (caves@are.us), September 14, 2000.

Natural gas surges to record as storm threatens gulf rigs

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Bloomberg%20Energy&touch=1 &T=energy_news_front.ht&s=AOcEJ4RSHTmF0dXJh

-- Cave Man (caves@are.us), September 14, 2000.

Energy costs erode profits

09/26/00 RUSSELL HUBBARD News staff writer

Record-high energy prices threaten to melt sales and profits at big petroleum and natural gas users throughout Birmingham, as heavy industry struggles to pass along the higher costs. http ://www.al.com/news/birmingham/Sep2000/26-e396398b.html

-- Cave Man (caves@are.us), September 26, 2000.

After the squeeze results in too much pain, the prices will go down.

-- cpr (buytexas@swbell.net), August 24, 2000.

---------------------------------------------------------------------- ---------- ^^^^^Ok, so explain how come they didnt go down in England (I believe) wherever the hell they are protesting in the damn streets? And it AINT over food service lines toots!!!

-- consumer (shh@aol.com), September 26, 2000.

Top Stories Dain Rauscher Wessels analysts predict natural gas crisis

A natural gas crisis is brewing, with too little new North American supplies coming on stream to significantly affect rapidly growing demand, Dain Rauscher Wessels Inc. analysts said Tuesday at the start of their 3-day annual energy conference in Houston. Supply and demand dynamics are shaping up for trouble, especially for a peak demand period in early spring. In various presentations during the first day of that conference, producers and service company executives said they see upstream activity increasing through 2001 and beyond, primarily as a result of growing domestic demand for natural gas and a slower recovery of international oil markets. Yet despite a sharp increase in domestic gas drilling since last year, gas production from the lower 48 states remained flat through July, said Ray Deacon, who follows exploration and production operations at Dain Rauscher Wessels. While total gas reserve replacements will be "well in excess of 100% this year," Deacon said, "we won't see a real increase in supplies because most of the drilling is in areas where additional pipeline is currently or soon will be needed." He predicts lower 48 production will grow by 0.5 to 1 bcfd in 2001, primarily as new coal bed methane and Gulf Coast production offset continued declines in the Gulf of Mexico. Canadian imports also should grow by 200-500 MMcfd next year. But new drilling in the deep waters of the gulf and other frontier regions, along with renewed interest in Gulf Coast exploration, will not provide a significant supply boost over the next year, Deacon predicted. And although imports of liquefied natural gasparticularly from Trinidadare rising significantly "in percentage terms," he said, it is building "from a very low level." Meanwhile, fellow analyst John Myers sees growing demand for gas, led by new power plants. Although the recent fly-up of gas prices has clearly affected industrial demand, he said, that is more than offset by growing demand from new gas-fired power plants. More than 275 gas-fired electrical generation plants are planned to begin operations through 2006, up from 158 a year ago, which would increase gas consumption by more than 8.5 tcf. Even if all of those plants are not built as planned, Myers said, there will be a significant jump in demand for gas as a result of the pending "death" of coal as a competing fuel. With environmental concerns on the rise around the globe, Myers predicted that, at some point, there will be no place for coal outside of steel manufacturing. Coal supplied 24% of total world energy in 1999 and 25% of US energy. As coal is replaced in those markets, Myers said, future consumers will pay a premium for gas "for environmental reasons." Meanwhile, he said, the US appears headed into winter with gas inventories of less than 2.585 tcf"the lowest ever," down 140 bcf, or 5%, from the previous low in the fall of 1996. Another warm winter like 1999 would result in a similar drawdown of 1.964 tcf, with a near-record low of only 621 bcf remaining in inventory next spring. But a cold winter could trigger "a disaster scenario," with a drawdown of nearly 2.4 tcf. That would leave a record low inventory of 186 bcf next spring at a period of record high demand, said Myers. In the interim, the previously dysfunctional Organization of Petroleum Exporting Countries has regained control of the world oil market. With 90% production capacity utilization, cartel discipline works well enough to maintain an average price of about $25/bbl for West Texas Intermediate crude through 2001 "and probably longer," said Dain Rauscher Wessels analyst Stephen Smith. Spurred by those factors, the US rig count will be up 45% this year and increase another 20% in 2001, said James Wicklund, another Dain Rauscher Wessels expert. Canada will be looking to increase its production, while national and integrated oil companies will accelerate spending in international markets, he said. But the service industry's need to build new rigs and other equipment is still "held hostage by investors" who "want to own company stocks up to the day they add new capacity," Wicklund said. Shortages of qualified workers, critical equipment, and manufacturing equipment will become "the most critical factors facing this business," he predicted.

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