Natural Gas Prices: ''We're going to hear some people really scream this winter.''

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Friday September 29 12:02 PM ET

Consumers Face Natural Gas Price Shock

By Joseph Silha

NEW YORK (Reuters) - As politicians fret over high home heating oil costs, the price of natural gas has been steadily climbing to record levels and is likely to deliver an even bigger shock to consumers this winter, industry analysts warn.

While the Clinton administration prepares to release oil from strategic stockpiles to dampen high prices and consumer anger, hardly a voice has been raised about recent price spikes in gas, used to heat more than half the homes in the nation.

Only about 10 million homes in the U.S. are heated with oil, while some 56 million use gas.

On the New York Mercantile Exchange (NYMEX) this week, natural gas futures prices topped $5.40 per million British thermal units, a new record high and more than double last year's levels. And few analysts see any relief in sight.

``The gas situation is going to be very tight this winter. Six dollars on NYMEX is very probable and seven dollars is not out of the question. And if we get a cold winter, prices could go significantly higher than that,'' said Kyle Cooper, energy analyst at Salomon Smith Barney in Houston.

Utilities, looking to head off the coming backlash, have warned customers to expect the worst.

Frank Bracken, senior energy analyst at investment banking firm Jefferies & Co. in Austin, Texas, said higher wholesale gas prices will mean winter heating bills for consumers that are 50 percent higher than last year.

``I think we're going to see quite a clamor this winter. Consumers are going to have less disposable income, and we're going to see a lot of politicians talking about high energy prices,'' said Kevin Petak, director at Virginia-based consultants Energy and Environmental Analysis.

At U.S. Senate Energy Committee hearings this week, committee chairman Sen. Frank Murkowski warned that natural gas is an energy policy ``train wreck'' waiting to happen, adding the Clinton administration has encouraged the use of natural gas but placed federal lands off limits for new production.

Scramble For Supplies

Consumers may face record high prices, but few industry experts expect actual shortages. Rather, they warn of a bidding war as suppliers scramble to keep gas flowing to key Midwest and Northeast markets.

``If we get a normal winter, storage will be depleted to record low levels. That doesn't get us into curtailments, but it engenders some very high prices and means we may not be able to build inventories back to normal for the following winter,'' said Jefferies & Co.'s Frank Bracken.

Analysts said a collapse in drilling in 1998 and 1999 in response to low oil and gas prices helped set the stage for the tight scenario this year, especially with recent mild winters masking healthy growth in gas consumption, primarily from new gas-fired power generators.

And while drilling has picked up sharply this year and should mean more supply next year, most of the gains will come too late to rescue consumers from soaring heating bills this winter.

``Inventories are going to be a little light going into winter, and if we get a normal winter, we could see some big price spikes, possibly seven dollars or higher,'' said an ABN AMRO analyst in New York.

Domestic natural gas inventories, reported Wednesday by the American Gas Association at 2.4 trillion cubic feet (tcf), are running 15 percent below last year and 10 percent below the five-year average.

Of course, another mild winter could mean some price relief, driving wholesale gas prices below $4.00. But most meteorologists are predicting higher chances for a seasonal winter this year as the moderating effects of El Nino and La Nina in the eastern Pacific fade.

Bracken said higher heating bills will translate into ''hundreds of dollars'' of extra costs for consumers, adding

''We're going to hear some people really scream this winter.''

http://dailynews.yahoo.com/h/nm/20000929/bs/gas_consumers_dc_1.html



-- Carl Jenkins (Somewherepress@aol.com), September 29, 2000


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