Missouri Natural gas prices climbing even higher than expected

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Natural gas prices climbing even higher than expected

By STEVE EVERLY - The Kansas City Star Date: 11/21/00 22:15

Natural-gas prices are hitting record highs and feeding concerns that this winter's heating costs will be even higher than already feared.

The average customer already was looking at an additional $250 to $300 in annual gas bills compared with last year. If the recent prices spikes hold up, that could instead be $350 -- and more if this winter is colder than last winter.

This week's blast of winter temperatures roiled wholesale-gas markets and boosted prices an extra 12 percent in the last two days. The fuel's wholesale price, which is passed along to consumers, is now triple what it was a year ago.

Warmer-than-expected weather still could soften prices, but analysts say that consumers should prepare to pay even more for gas than predicted just a few weeks ago.

"We're now in a situation where we can expect to see price spikes," said David Costello, an economist for the federal Energy Information Administration in Washington.

Gas bills were expected to increase 20 percent to 30 percent. But as winter closed in, those estimates were ratcheted up to 40 percent. Now, winter heating bills that are 50 percent higher than last year are a possibility.

Consumers are beginning to take notice now that furnaces are turned on and heating bills soon will land in their mailboxes. Many utility customers are preparing their wallets to take a hit, although they're not happy about it.

"It really seems that things are out of line, and it's starting to get depressing," said Frank Houcek Sr., a Kansas City, North, resident.

Area utilities say that to cushion the effects, more customers have been signing up for level-payment plans, which allow households to spread out winter's higher gas bills over the course of the year. Such plans still are available for this winter.

The recent volatility adds to what already has been an unusual year for gas prices. Typically, prices fall during the summer, so utilities buy and stockpile some of the fuel they plan to sell during the winter.

But since spring, gas prices have stayed above $4 per thousand cubic feet, or about double year-ago levels. An average household uses about 100,000 cubic feet of gas a year, much of it in the winter.

The price swings have accelerated as winter approached. In September, daily wholesale prices climbed above $5 per thousand cubic feet. In October, the average Midwest price was about $4.30. In November it bounced back to above $5. Last Friday it was $5.67. On Monday it was $6.26, and Tuesday it was $6.37.

What's going on? It depends on who is asked. Energy traders say gas supplies are stretched, so any forecasts of cold weather will boost prices.

"This market is sensitive to any shifts toward colder patterns in the forecasts," one trader told Bloomberg Business News on Monday.

The companies who actually supply the gas are somewhat puzzled by the recent spikes. Though supplies are tighter than in the last few years, the supply is expected to be sufficient to meet demand.

"We don't think that the supply situation is as tight as is being reflected by the price," said Rhone Rusch, head of utility regulations for the Natural Gas Supply Association.

Whatever the reason, consumers will pick up the bill, because utilities pass on the higher gas costs directly to their customers. The effect of this week's price spikes will depend on whether they hold up for a few more days, when utilities lock in their contracts for gas deliveries next month.

Steve Johnson, a spokesman for Kansas Gas Service, said customers could expect to pay more for gas if the price spikes last until the monthly prices are posted later this month. But any price increase will be cushioned at least a little by the utility's hedging program.

The hedge, which caps the price of some of the gas the utility sells, could save customers more than $15 million -- after costs are deducted -- this winter, or about $22 for the average household.

Missouri Gas Energy doesn't have a hedging program in place. Like other utilities, it will be able to soften some of any price increase by using gas it bought earlier this year at a relatively lower price. About a third of the gas that utilities need during the winter is bought early and stored.

Missouri Gas raised prices Nov. 1 to cover what it expected to be its gas costs for the winter. But this week's price spikes -- if they hold up -- will prompt the utility to review what it is charging for gas to ensure it's recovering its costs.

Gas prices "are a little higher than anyone thought they would get," said Paul Snider, a Missouri Gas spokesman.

http://www.kcstar.com/item/pages/home.pat,local/3774efc1.b21,.html

-- Martin Thompson (mthom1927@aol.com), November 22, 2000


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