Utah Natural-Gas Supplies Running Low

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With Natural-Gas Supplies Running Low, Prices Are Likely to Rise in Utah Sunday, March 25, 2001 BY STEVEN OBERBECK THE SALT LAKE TRIBUNE

Utah homeowners already smarting from the sting of higher natural-gas bills should prepare for more of the same this year. With the arrival of spring, cold weather in Utah soon will be on its way out. Yet heavy demand for natural gas is expected to continue at unprecedented levels throughout the summer and into next winter. That's because natural gas, once primarily thought of as a home heating and cooking fuel, suddenly is in red hot demand as a power source for plants that produce electricity. Natural-gas-fired plants produce little pollution compared to coal-fired generation. And that means they can be built quickly because there are fewer environmental concerns.

"We'll be paying more this summer and more next winter," said D.N. Rose, chief executive officer at Questar Gas Co. and this year's chairman of the American Gas Association. The U.S. Department of Energy is forecasting residential natural-gas prices in 2001 will average $9.83 per thousand cubic feet, up from $7.73 in 2000. The typical home in Utah uses around 115,000 cubic feet of natural gas a year.

To boost electricity production, Utah Power is adding an additional 100 megawatts of gas-fired generating capacity to its Gatsby plant near downtown Salt Lake City. The utility also plans to use the fuel to power a new 200 megawatt plant in West Valley City. The new Gatsby generation is expected to go online in June, just in time to help meet peak summer electricity demand for air conditioning, said Dave Eskelsen, spokesman for Utah Power. Construction of the West Valley City plant is expected to be completed in September. Traditionally, Questar and other natural-gas utilities use the summer months to rebuild their inventories for the coming winter. Now, however, growing demand for natural gas to produce electricity is extending the peak use period for the fuel well into the summer months.

This year, it presents a huge problem. Nationwide, inventories of natural gas in underground storage are 30 percent below year-ago levels, according to the American Gas Association's latest storage report. And that leads some analysts to project when the winter heating season officially ends on the last day of March, natural-gas inventories will be at an all-time low. "This winter will finish up with 400 billion cubic feet of natural gas less in storage than last year," said Timothy Evans, senior energy analyst at IFR Pegasus in New York.

It puts the industry in the difficult position of trying to play catch up with gas storage when more gas-fired power generation than ever is competing for gas that would normally be put into storage, Evans said.

The result is natural-gas demand could soar this summer, particularly if hotter than normal weather increases demand for electricity. "The lower inventory levels go, the fewer constraints there will be on price," Evans said. "If you want an example of what happens when an industry has zero inventories, look at electricity." Last year's surge in natural-gas prices sparked a surge in new drilling throughout the country, particularly in the Western states. In Utah, 674 permits were issued last year to drill new oil and gas wells, double the number approved in 1999. The number of drilling permits issued by the Utah Division of Oil, Gas and Mining for the first two months of this year is 85 percent above the level recorded in the first two months of 2000.

The vast majority of new wells that are being drilled in Utah and throughout the country are focused on increasing natural-gas production, Evans said. Still, it will be awhile before new production comes online. "It can take up to 18 months to bring a new natural-gas well to production," said Questar's Rose. "It is not something that happens overnight." When it comes to paying for natural-gas service, Utah consumers are luckier than most. Questar's rates are lower than almost anywhere in the country because nearly half the gas the company provides to its customers in Utah comes from company-owned wells. The gas is delivered at "cost of service" prices.

The rest of the gas the company supplies is bought on the open market at fluctuating prices. It is that exposure that led Questar in January to ask the Utah Public Service Commission to approve a $167 million "pass-through" rate hike -- an increase that is designed to help the utility keep pace with skyrocketing natural-gas prices. Questar applies for pass-through rate adjustments on average every six months. So should projections about rising natural-gas costs prove wrong, Utah consumers could see their natural gas bills decline.

And of the 33 pass-through rate changes since 1984, the company requested that its rates be lowered 23 times.

The company's latest request -- the $167 million rate hike -- is based on the company purchasing natural gas for its customers at $6.75 per thousand cubic feet. Currently, the cost for gas in the Rocky Mountain area is around $4.50 to $5 per thousand cubic feet but expected summer pressure on prices is still ahead.

http://search.excite.com/r/sr=news|ss=natural+gas;http://www.sltrib.com:80/03252001/business/82523.htm

-- Martin Thompson (mthom1927@aol.com), March 26, 2001


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