Higher Natural Gas Prices Predicted(again)

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------------------------------------------------------------------------------- Today: September 19, 2000 at 11:33:05 PDT

Higher Natural Gas Prices Predicted ASSOCIATED PRESS

WASHINGTON (AP) -- Homeowners who heat with natural gas could be feeling some financial pain this winter, given the dramatic price increase for the once-bargain fuel.

Residential consumers will pay about 25 percent more this winter for gas, the U.S. Energy Department predicted this month.

Industry estimates are even scarier. Paul Wilkinson, vice president of the American Gas Association, said retail costs for gas could rise to 40 percent above last year, depending on how cold it gets.

That prospect worries many people, among them Dorothy Day, an 85-year-old retiree in Columbus, Ind., who says she may not be able to afford to keep her five-room bungalow warm and comfortable through the winter.

"I don't know how I am going to do it," she said. "I ain't got nothing else to give up. I don't smoke cigarettes. I have the bare necessities."

This winter's wellhead price for natural gas could be $3.40 per thousand cubic feet, nearly double what it was last winter, the Energy Department estimated. The wholesale price is now over $5 per thousand cubic feet, up from $2 in recent years.

Adjusted for inflation, this winter's gas prices would be the highest since 1985.

Low prices in the past discouraged producers from looking for new gas deposits, but now that prices have rebounded, gas suppliers are scrambling to increase their output.

"There isn't a rig out there that is not being used," said Skip Horvath, president of the Natural Gas Supply Association, a Washington-based trade group for major producers.

Greater supply might eventually push down prices, but not this winter. Up to 18 months is needed to bring new gas to market once the drilling decision is made, Wilkinson said.

Homeowners are one of four primary markets for natural gas, along with commercial users, factories and electric utilities. Horvath said all four sectors are projecting greater demand.

Electric utilities are increasingly turning to natural gas for generating plants to avoid pollution problems with coal and other fuels. That's contributing to the current price increase and the possibility of a long-term shortage.

Natural gas price increases will create inflation pressure, said Daniel Yergin, chairman of Cambridge Energy Research Associates, based in Cambridge, Mass.

"I can't say how much, but we are in a period of higher energy prices, and that will add to inflation indexes," Yergin said.

Natural gas prices have gotten the attention of federal and state officials. The Interstate Oil and Gas Compact Commission, which represents governors of oil and gas producing states, is holding a one-day governors' summit Wednesday in Columbus, Ohio.

The officials will come up with recommendations, but the summit has no power to dictate policy. And government should not attempt price controls, said Alaska Gov. Tony Knowles, the compact's chairman.

"If the marketplace isn't allowed to work, you will clearly send to decisionmakers the message that it is not a good place to invest," said Knowles. "And you won't get the response for increasing supply, which is the very best antidote to high prices."

Several states are already seeing the effects of the gas price increase and are trying to react.

In Indiana, state officials are debating a suspension of the state sales tax on natural gas, while Iowa Gov. Tom Vilsack announced a task force to study energy consumption.

Some help is available for lower-income users to keep their gas from being shut off. Utilities commonly have assistance programs, and the federal government can give emergency funds to states under the Low Income Home Energy Assistance Program.

LIHEAP's beneficiaries include senior citizens, which could help Dorothy Day and many others get through a long winter of high heating bills.

"If I hear of anything like that, I'll be glad to sign up for it," she said.

http://www.lasvegassun.com/sunbin/stories/invest-corp/2000/sep/19/091900088.html



-- Martin Thompson (mthom1927@aol.com), September 19, 2000


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