Energy costs hits US consumers : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Energy costs hits US consumers By Hillary Durgin in Houston Published: September 15 2000 17:09GMT | Last Updated: September 15 2000 17:26GMT

There are some people in America for whom the current energy crisis is not just about oil but about natural gas and electric power.

Take Ray Poponyak, director of raw materials at CF Industries, a fertiliser manufacturer in Long Grove, Illinois. As the price of natural gas, a principal feedstock for its products, has soared over the past year, the company's energy costs have doubled, making profitability an elusive goal amid tough industry conditions.

"It's a difficult time for the industry - our margins are certainly under siege right now," Mr Poponyak says. "We certainly, like most people, didn't anticipate the severe run up in gas prices."

As American industries and consumers brace themselves for a winter of high oil-related fuel costs and possible shortages, the tight supplies and price spikes in the natural gas markets have been overlooked by many. The US Department of Energy expects that this winter will be the most expensive for natural gas users in the past 15 years.

With gas prices expected to be up by more than 50 per cent on average this year, industrial customers have been switching to less expensive fuels such as coal. Over the summer, gas utilities, afraid of consumer backlash, began warning customers about rate increases that in some regions could approach 30 per cent.

Combine the problems in the oil and natural gas sectors with the breakdown in the country's electricity grid, and you have a disturbing confluence of events that could reverberate through the US economy.

"The run-up in energy costs is going to have an impact on the wallet of the consumer," said Ronald Barone, natural gas analyst with PaineWebber in New York. "He's paying a heck of a lot more to drive his car; he's paying a heck of a lot more to heat his home; and, if he's living in California, he's paying a heck of a lot more for electricity. It will have an impact on disposable income."

Mr Barone and other industry analysts do not expect protests on the scale of those in Europe in the past few weeks. But in a country where energy has a direct impact on the people's personal sense of security, the current circumstances present a powerful potion for political debate and intervention, particularly in a presidential election year.

Natural gas prices have risen to about $5 a barrel oil equivalent on the New York Mercantile Exchange amid the tightest winter supply situation since the 1970s. In the spot market, the average price of natural gas for the year is forecast to be $3.35 and likely higher, up by more than 55 per cent over past year, according to PaineWebber.

Coming after nearly a decade of uninterrupted economic growth, and a period when low oil and gas prices gave people the cheapest energy they have had in their lifetime, the confluence of high oil and gas costs is challenging US consumers' notion of energy security.

"We have to redefine what we want energy security to mean," said Joe Stanislaw, president of Cambridge Energy Research Associates. "The real question is, 'Can we run our facilities and heat our homes and drive our cars?' "

That question, however, raises the issue as to whether Americans are ready to settle for absolute energy supplies at high prices or reasonable supplies at moderate prices. "It's an issue," Mr Stanislaw said. "Energy security must mean more of a reasonable supply, readily available at very reasonable prices."

Right now that is not happening, whether it is due to tight supplies in the oil and gas markets or power capacity shortages in California and the north-east. Some property owners in New York City are worried about whether they can afford what they have been told will be a 40 per cent increase in their electricity bills.

"Energy is fairly distinctive in its ability to put safety concerns and health concerns at risk - if you cannot get heat in your home in northern Maine you're going to die," says Edward Krapels, director of Energy Security Analysis in Boston.

Mr Krapels said that for the most part, residents need not worry about possible supply shortages leaving them in the cold. The nation's natural gas system is designed to "interrupt" large industrial customers' service on the coldest days of winter to ensure adequate supplies for residents.

At CF Industries, despite to day's gas price of about $5 per thousand cubic feet, the company has been unable to shift costs to customers because fertiliser prices are set in a global marketplace. At the same time, the company cannot cut production because it is part of a co-operative whose 10 owners depend on receiving a set amount of its products.

"We have demand we have to meet," said Mr Poponyak.

-- Martin Thompson (, September 15, 2000


Natural gas is seldom considered as a vital constituent to the producton of fertilizer. This is nearly as important as it is as an energy source.

-- Uncle Fred (, September 15, 2000.

I think a lot of people miss the interconnectability of oil and natural gas as energy sources. Interruptible contracts in most indussries are pervasive. Once one short-supply fuel must be substituted for another short-supply fuel chaos could ensue.

-- Billiver (, September 15, 2000.

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