This weeks issue of Time has an informative article in it about the nation's natural gas situation. Here's an excerpt from it.

http://www.time.com/time/magazine/article/0,9171,94031,00.html

Power To The People

As California battles just to keep the lights on, heartland homeowners pay dearly to stay warm

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California, though, isn't the only part of the country grumbling about an energy crunch. While the rest of the U.S. doesn't have to worry much about the lights going out, millions of homeowners across the country are watching their heating bills soar. With unusually cold weather and a shrinking inventory of natural gas, the wholesale price has quadrupled in the past year, saddling consumers with bills that are expected to rise 40% to 50% this year. In December alone, consumption of natural gas, which keeps more than half of all U.S. homes warm, rose 20% from the year before, according to Cambridge Energy Research Associates.

Unlike the electricity squeeze, the tight market for gas has less to do with misguided government than with classic boom-and-bust economics. In the late '90s, as the price of gas mirrored oil's downward spiral, few banks or drillers were willing to risk the capital to hunt for a practically worthless commodity. Now that the price has rebounded, the West Texas oil patch is hopping, with more rigs and prospectors hunting for gas than since the mid-'80s.

Still, all that action won't yield results in time to offset the winter chill. Bills are piling up so fast in Chicago that 3,000 residential customers a week are pleading with Peoples Energy for an assistance or installment plan. Some chemical manufacturers in the South have decided that it's more profitable to shut down temporarily and sell their contracted power back at a higher price than to use it themselves. (Which is exactly what aluminum makers in the Northwest are doing with their valuable electricity, much of which flows to California.) At a time when many fear the country is slipping into a recession, the natural-gas spike, according to Goldman Sachs, could cut economic growth by 1%.

And guess what? About half the power plants in California, and a quarter of them nationwide, are fueled by natural gas. A price increase in one commodity just triggers another elsewhere. Some natural-gas providers have even balked at selling to the cash- strapped utilities. Governor Gray Davis, who has been criticized for acting too slowly, admits that "deregulation is broken and needs to be fixed."

The question, of course, is how. Initially, California's hastily implemented deregulation wouldn't even permit utilities to hedge their bets with long-term fixed contracts--a key ingredient of successful deregulation efforts in states such as Pennsylvania and Maryland. The fear, ironically, was that they would lock in a high sale price today at the risk of missing out on a lower one tomorrow. Instead, they've had to pay top dollar on the daily spot market.

Consumers aren't helping much either. Shielded from the vagaries of the free market by an artificially low rate, they have had no financial incentive to conserve.

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-- Time (on@natural.gas), January 12, 2001

Answers

There were four points in this article that I hadn't been all that aware of before (which is why I found it so informative).

* In December alone, consumption of natural gas, which keeps more than half of all U.S. homes warm, rose 20% from the year before, according to Cambridge Energy Research Associates.

* At a time when many fear the country is slipping into a recession, the natural-gas spike, according to Goldman Sachs, could cut economic growth by 1%.

* About half the power plants in California, and a quarter of them nationwide, are fueled by natural gas.

* Initially, California's hastily implemented deregulation wouldn't even permit utilities to hedge their bets with long-term fixed contracts--a key ingredient of successful deregulation efforts in states such as Pennsylvania and Maryland. The fear, ironically, was that they would lock in a high sale price today at the risk of missing out on a lower one tomorrow.

-- Time (on@natural.gas), January 12, 2001.