Last Updated: Wednesday 13 December 2000 LOCAL BUSINESS

-------------------------------------------------------------------------------- Spot price of natural gas plunges $11 US at Sumas

But analysts warn the market is volatile and high prices will likely last all winter Gerry Bellett Vancouver Sun The spot price of natural gas plunged Tuesday -- by as much as $11 US at the Sumas hub where the price of B.C. gas is determined -- but analysts are warning high prices will likely last through the winter

"It doesn't take much to spook the market. It's very volatile," said Peter Linder of Research Capital Corp. in Calgary.

Gas for January delivery dropped 13 per cent on the New York Mercantile Exchange on Tuesday on the strength of a forecast that the cold weather settled over much of North America will ease.

But that means prices could rebound just as easily on the basis of another, less favourable forecast, noted Jeff Fiell of Canaccord Capital in Calgary.

Fiell said Tuesday's price movement showed just how sensitive the market is.

"It's a blizzard in Chicago, it's 15 degrees below normal, and the price is down a buck twenty-seven because some guy from the National Weather Service said: 'I think it's going to warm up in a week.' "

Even with such a price drop, the spot price at Sumas was $20.55 Cdn. per gigajoule -- far beyond what B.C. industries tied to the spot price of natural gas can afford.

Some greenhouse operators have switched to propane or oil to heat their premises while others are reported to be on the verge of going bankrupt.

A number of greenhouse operators who chose to leave the B.C. Gas system and buy energy on the spot market have inquired about coming back, said BC Gas public affairs director Cam Avery.

Avery said it would take a decision of the B.C. Utilities Commission or the provincial government to allow them back in before November 2001 -- the next time contracts will be negotiated for commercial and industrial customers.

The reason they want to return is obvious: While the spot price Tuesday was $20.55, the price being charged greenhouse operators who stayed with BC Gas range from $6.60 to $6.24 per gigajoule.

Avery said it would be unfair to other customers to allow industries who chose to opt out to come back in.

"We have had to buy gas for the people who are going to be our customers through the winter and not for those who chose to go elsewhere because they found a lower price," Avery said.

He said BC Gas purchased its supplies last summer so it does not have to go to the spot market or pay the monthly price to meet demands from its 750,000 customers.

Avery said the utility has obtained 122 petajoules of natural gas for the winter, about 90 of which will be consumed by customers.

"So we'll have gas that we can put back into the Sumas market and sell at the spot price or monthly level. What we make there is used to offset the $150 million losses we've incurred," said Avery.

The $150 million is the difference between what it has cost B.C. Gas to supply its customers in recent years and the price the B.C. Utilities Commission has allowed it to collect from customers.

The commission is likely to rule Thursday on a request by B.C. Gas for yet another round of price increases -- this time a 30-per-cent hike for residential users and a 34-to-40-per-cent increase for commercial and industrial customers.

Bill Grant, executive director of the B.C. Utilities Commission, said despite a public outpouring of concern over further price increases the commission couldn't ignore what was occurring in the market place.

"The problem is that for the last six months the price has been going up, up and away. Given all that's happened, the commission has got very little room to move right now," he said.

The commission's office has been so inundated with phone calls from concerned and anxious consumers that staff have struggled to handle them, he said

Grant said the commission was concerned with B.C. Gas being $150 million out of pocket and the fact that customers will eventually have to pay off that deficit.

Avery said that was the reason B.C. Gas needs to be able to sell its surplus energy and why unexpected demands for access to the system were unwelcome.

"It helps pay down the $150 million our customers already owe us. We have an obligation to mitigate our customers' costs whether they are a pensioner, a single mom or a greenhouse operator who stayed with us and didn't go off and play the spot market.

"So for these guys to come back in and get the price our committed customers are receiving means we would be unable to sell that gas on the spot market.

"In effect Widow Brown would be asked to subsidize Greenhouse Operator Smith -- and if we did it for one we'd have to do it for everyone.

"It gets to the point that we can't take people back in because they are pleading they've made a bad business decision. It would take the B.C. Utilities Commission or the provincial government to say widows and pensioners should be subsidizing these industries because we can't do that," said Avery.

http://www.vancouversun.com/newsite/business/001213/5007693.html

-- Martin Thompson (mthom1927@aol.com), December 14, 2000