Oklahomas Natural Gas Bills Expected to Rise as Much as 60 Percent Source: Knight Ridder/Tribune Business News Publication date: 2000-09-03

Sep. 3--Oil prices are high, and people have felt the pain at the gasoline pump. Natural gas prices are high, and people don't seem to notice. That might change soon.

Experts say consumers' natural gas bills could be 50 percent to 60 percent more this winter than last winter. More simply, if you paid $100 a month for your natural gas bill last winter, you could be paying $150 to $160 a month this winter. And the price tag could be even higher.

Experts have been warning for months that natural gas prices could continue to surge. They're about $4.60 per thousand cubic feet now; just eight months ago, they were near $2.

So far, most consumers haven't noticed that price surge in their utility bills because electric bills aren't affected as much. Natural gas bills are typically low in the summer, when the temperatures are high and gas consumption is low. But when the winter weather arrives, people will turn on the heat and the natural gas bills will surge.

They could surge so much that consumers may feel like they do at the gasoline pumps.

Predicting natural gas prices for winter is no easy task, especially when prices are at historic highs.

"We're kind of in uncharted territory, so when you start to forecast prospective prices, it makes it very difficult," said Billy Maxwell, vice president of financial trading for ONEOK Inc., the parent company of Oklahoma Natural Gas.

Maxwell said natural gas prices could be $5 to $7 per thousand cubic feet this winter, depending on how cold the weather gets. The colder the weather, the higher the demand and the higher the price.

If gas prices reach $5 to $6 per thousand cubic feet, consumers will see about a 50 percent to 60 percent increase in their natural gas heating bills from a year ago, said Don Sherry, a spokesman for Oklahoma Natural Gas.

Sherry was quick to point out that a higher price doesn't mean that ONG "reaps a windfall."

"The gas supply is purchased by the utility ... and that cost is passed through to consumers with no price mark-up," Sherry said.

ONG has alerted customers of the looming higher prices and is giving advice on how to make homes more energy efficient, Sherry said.

Among the energy conversation tips:

-- Make sure homes are adequately insulated.

-- Make sure heating equipment is properly maintained and serviced.

-- Make sure to buy the most energy-efficient heating unit affordable.

The higher natural gas prices also will affect consumers with electric-generated heat. That's because Oklahoma Gas & Electric uses natural gas to fuel its power plants.

OG&E spokesman Paul Renfrow said the utility only uses its natural gas generators when demand for electricity exceeds the supply coal-fueled power generators can produce.

Renfrow estimated that for every 1,000 kilowatt hours of electricity used, a consumer would see a price increase over a year ago of about $5.50. The average household uses about 2,000 kilowatt hours a month, which would equate to a monthly bill increase of about $11.

America is not experiencing a natural gas shortage. Experts say the nation has plenty of natural gas to keep humming along for decades.

The current supply shortage isn't a result of low resources, it's a result of decreased production. For years, the natural gas industry has been downsizing for a simple reason -- the price of gas was low.

According to the Energy Information Administration, since 1985, the average annual price for natural gas consistently has been below $2 per thousand cubic feet.

"We as an industry have suffered through that period of time with very low prices," said Mark Monroe, the president and chief executive of Oklahoma City-based Louis Dreyfus Natural Gas.

Those low prices had an effect on the industry -- companies slowed production. After all, they had little incentive to pay the high costs of exploring for a product that had low value. As a result, the industry's infrastructure slowly disintegrated. Now, that infrastructure is being rebuilt to meet the surging demand; but that's not an overnight process.

"The industry has been in a cost-cutting mode for so many years, and now to ask it to shift from cost-cutting to growth, it just doesn't happen at the flip of a switch," Monroe said.

Ramping up production means refurbishing drilling rigs that have long since been out of commission. But coming up with the drilling "hardware" hasn't been as big of a problem as finding the people necessary to run it, Monroe said.

"What happens when you go through a bust like we did is that you lose people," Monroe said. "You lose the experienced rig hands and drilling operators."

Workers were left unemployed as the United States' oil and gas rig counts steadily declined over the years -- from a high of 4,530 in December 1981 to a low of 488 in April 1999. And those workers weren't "hanging around waiting for a phone call to work on the rig," Monroe said. "They found other employment -- something a little steadier, something they could depend on."

The U.S. oil and gas rig count has slowly risen, and was 1,019 Friday. That's up 23 from the previous week and 348 from the previous year, according to Baker Hughes, a Houston-based energy company that has charted rig counts since 1940. Natural gas rigs account for about 80 percent of that total.

"One problem has been building the work force again to be able to operate 1,000 rigs or maybe 1,100 or 1,200," Monroe said. "I would say the biggest problem is assembling the crews."

Monroe said natural gas producers would catch up with the demand.

"I'm confident we're going to build the production to meet this growing demand, but there is a time lag," Monroe said.

That means paying this winter's heating bills is probably going to have people digging deeper into their pocketbooks.

Why now? One question is why have natural gas prices gone up now, after 15 years of depressed prices. The answer has to do with electricity and how it's generated.

In recent years, the demand for electricity has surged as the nation's economy has grown. That demand has forced utilities to generate more electricity. More frequently, that extra electricity is being produced by generators that are fueled by natural gas.

According to the Energy Information Administration, natural gas consumption for electrical generation was 18 percent higher in the first quarter this year than in the first quarter of 1999.

That demand for natural gas from power generators is likely to continue. According to the state Department of Environmental Quality, six permits have been issued to build power plants in the state, and six more permit applications are pending. All 12 of the proposed power plants would be fueled by natural gas.

Building power plants isn't the only way to increase the production of electricity. Some power companies have added generators to existing power plants. An example of that expansion is in Harrah, at OG&E's Horseshoe Lake Power Plant. The plant recently added two more generators, both of which are fueled by natural gas, OG&E's Renfrow said.

"That was to take care of this growing demand for electricity," Renfrow said.

Electricity is primarily produced in three types of plants: coal-powered, natural gas- powered and nuclear-powered. Coal has been main the fuel of choice in Oklahoma.

Power companies have chosen to use natural-gas generators more because they cost less and they're quicker to build. They're also more environmentally friendly than coal plants.

The natural gas-fueled power generators have helped OG&E meet a steadily rising demand for electricity.

"In 1998, we broke our all- time record eight separate times during that summer," Renfrow said, referring to the supply of electricity to customers. Renfrow said OG&E believed 1998's rise in electricity use was because of the extraordinarily hot summer. That wasn't the case.

"The next summer we broke those records again several times," he said. "We broke them again this summer, even though, to date, it's been largely milder than 1998."

According to the Energy Information Administration, natural gas used for electricity generation increased 18 percent in the first quarter of the year. In 1999's first quarter, 1.3 trillion cubic feet was used for electricity generation. In the first quarter this year, that number increased to 1.53 trillion cubic feet.

Renfrow's explanation for the increase in electricity consumption was the same as other experts: "We have a growing economy, ... and it takes electricity to run it."

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-- Martin Thompson (mthom1927@aol.com), September 07, 2000