Natural gas prices soar into `uncharted territory'

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Natural gas prices soar into `uncharted territory'

By STEVE EVERLY - The Kansas City Star Date: 12/11/00 22:15

Natural-gas prices are reaching record heights that could send heating bills far higher than was feared even a few weeks ago.

Cold weather invading the Midwest is being accompanied by gas prices once considered unimaginable. The average wholesale price for natural gas in the Midwest rose about 35 percent Monday, to more than $11 per thousand cubic feet.

The spiking prices, which have doubled in the past month and are five times the levels of a year ago, are having an impact. Farmland Industries Inc., for instance, last week temporarily stopped fertilizer production at two plants because of high gas prices.

There also is growing concern that previous estimates of heating bills being 50 to 60 percent higher this winter are far too conservative.

"It's a very scary situation we are in and extremely troubling," said Walker Hendrix, counsel for the Citizens' Utility Ratepayer Board in Topeka.

Wholesale prices have jumped from a Midwest average of about $6.50 on Dec. 1 to $11.28 per thousand cubic feet on Monday. The average household is expected to use about 90,000 cubic feet of gas this winter.

Most households won't feel the brunt of this month's increases unless prices stay at these levels through the end of December. That's when most utilities, including Missouri Gas Energy and Kansas Gas Service, price most of the gas they will sell in January.

But if gas prices stay near current levels, the impact on consumers will be staggering. A gas bill that was $150 last January could be $350 or more next month.

"We're entering uncharted territory," said Paul Snider, a spokesman for Missouri Gas Energy.

Consumers wanting to save money should conserve natural gas by such techniques as turning back thermostats, caulking and weatherstripping windows and getting furnace tune-ups. Utilities also are still accepting customers in their level-payment or average-payment plans.

Even without this month's spike, consumers are getting sticker shock as November gas bills reach mailboxes. The bills have been made worse by higher gas prices and a colder November than last year.

Richard Ziemer of Overland Park paid $54 for gas he used in November 1999. This year his November bill plus two days in December totaled $159.

"I just about fainted," Ziemer said. "There has got to be some shenanigans going on."

For many large business customers, the effect of the past two weeks has been even more dramatic. Many of them buy substantial amounts of the fuel on the daily wholesale market. Even those companies that have fuel they had already purchased at a cheaper price are finding they can make more money selling the gas.

Farmland Industries is among the top 10 industrial users of natural gas in the United States because gas is used in making the company's fertilizer. It recently suspended production at plants in Louisiana and Oklahoma because of the higher gas prices.

"It's not economical to turn expensive natural gas into inexpensive fertilizer," said Rich Shuck, manager of natural gas for Farmland.

Monday's spike began early with news of a blizzard in the upper Midwest and forecasts of frigid air that would settle throughout the region, including the Kansas City area.

Facing concerns that the higher demand would stretch tight supplies, traders on New York Mercantile Exchange quickly bid up gas to above $9 per thousand cubic feet for January delivery.

Prices climbed even higher for wholesale gas for immediate delivery in the Midwest. Some natural gas in the Chicago area traded for as high as $14 per thousand cubic feet.

The energy crisis and some pipeline difficulties in California were also having some effect. Prices at the California border were about $45 per thousand cubic feet, and those were attracting some gas that would have been sent to the Midwest.

The price volatility has been unprecedented. On Monday morning, employees who follow gas prices for Kansas Gas Service watched as prices went above $10. They then had to scramble because their computers and forms were equipped with only enough spaces for three-digit prices under $10.

The good news, said Bill Eliason, the utility's vice president for gas strategy, was that there was no difficulty in meeting Monday's demand for gas. Missouri Gas Energy officials said they also were able to supply the gas customers needed.

Prices in coming days and weeks are hard to predict, Eliason said. But he hopes prices will decline if longer-range forecasts for more moderate temperatures turn out to be true.

"I think the market is going to recognize that $10 (gas) is more than necessary," he said.

A backlash may be brewing. The U.S. Senate's Committee on Energy will hold hearings today about the rise in gas prices. Among the questions: Why are they far higher than predicted just over a month ago?

"We're really trying to get a handle on what is going on out there," said Bryan Hannegan, the committee's staff scientist.

Hendrix, of the Citizens' Utility Ratepayer Board, said he expects more scrutiny of how utilities purchase the fuel they resell to their customers. Currently, he said, there is too much reliance on indexes that simply pass the market price on to consumers. Utilities may need to change their purchasing to protect consumers more against price spikes.

"No one wants to speak against the free market, but there is a downside to it," he said.

http://www.kcstar.com/item/pages/home.pat,local/3774fab2.c11,.html

-- Martin Thompson (mthom1927@aol.com), December 12, 2000


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