Hearthlist Digest #444 - Monday, April 24, 2000 Natural Gas Prices by <[email protected]>
(back) Subject: Natural Gas Prices From: <[email protected]> Date: Mon, 24 Apr 2000 16:33:27 -0400 After last winter's oil price spike and Y2K scare, a lot of our customers = had a great January and February selling pellet appliances. The renewed = interest in pellets was satisfying, as a lot of us got into this "alternative energy" industry as a result of the oil price spikes in the 1970's and 1980's. = Remember the picture of a retailer dressed up in an Arab robe outside a wood stove = shop (in was in Wood-N-Energy, whoops, Hearth & Home). If you looked at = historic wood usage for home heating, wood as a fuel was on a long decline from the 1940's until 1973-1974, the first oil price spike. After a period of = growth it declined again until the next spike in the 1980's. What we saw this winter, after the Y2K farce, was a consumer motivated by increased fossil fuel costs going back into the wood stove shop looking = for alternative energy sources, shades of the 70's & 80's.... Besides stick = stoves, we can now offer this consumer a more convenient pellet appliance. Besides the oil price spike, look for price increases in natural gas. This market, at least for residential customers protected by public utility commissions, doesn't wildly swing in prices. However over the last several years many utilities and non-utility generators started using gas as a fuel for = power generation. This was outlawed by FERC in the 70's and 80's. As this new demand increases, it puts pressure on supply, and subsequently pricing, which = will be added on to rate bases and consumers bills. I found this article in BusinessWeek, and thought I'd pass it along. I = hope the retailers on this list take the pellet option seriously this upcoming = season. Consumers will be motivated next fall by fossil fuel costs, you should = offer this very viable option. UNNATURAL DEMAND FOR NATURAL GAS Business Week: April 3, 2000 Prices explode, while supplies fall near their lowest level in years Byline: By Stephanie Anderson Forest in Dallas, with Bureau Reports Fed up with heating oil prices that more than doubled this winter, James Cenesullo is spending $900 to retrofit his two-story home in suburban = Boston to burn natural gas. ``I went for natural gas because oil was going = ballistic,'' says Cenesullo. ``I'm looking forward to price stability.'' He shouldn't count on it. Like Cenesullo, a growing number of utilities, businesses, and consumers are switching to natural gas to escape spiraling = oil prices. While it has garnered most of the headlines, stampeding demand has = also helped send natural gas prices soaring- -up more than 30% at the wellhead = vs. a year ago. Although regulatory protection keeps consumers from absorbing = all of that increase right away, prices have jumped 9%, to about $6.63 per 1,000 = cubic feet. Costs are likely to increase an additional 6% by next winter. ``A seller's market for natural gas has officially arrived,'' proclaims analyst Robert = L. Christensen Jr. of First Albany Corp. The seeds of this shift were sown two years ago when crude oil prices started to fall, bottoming out at $10 a barrel by the end of '98. That forced many = energy companies to reduce or abandon drilling for new oil and gas. It has also = become harder to squeeze production from maturing U.S. properties. In the past, = the U.S. could turn to Canadian producers, but supplies are now tight up north, too. The result: Supertight supply just as demand is skyrocketing. Inventories = are near their lowest levels in four years--just as the industry starts its critical April-to-October season, when storage tanks are refilled. The American Gas Assn. Says inventories stand at 1.1 trillion cubic feet, down 22.8% from a year = ago. The shortfall comes despite three straight years of warmer-than-normal = winters. Analysts predict it will be difficult to rebuild reserves in time for next winter. A buoyant economy is making that job even tougher. Industrial users = account for nearly half of the demand, while residential consumers account for 22%. = The Energy Information Administration estimates natural gas demand will grow nearly 5% this year; production is expected to increase less than 1%. Next year, = the agency estimates, demand will climb 3%, while production will rise a mere = 0.3%. ``North American gas markets are heading for a major train wreck,'' warns Goldman, Sachs & Co. analyst Donald F. Textor. BYE BYE, COAL. Fueling the growth in demand is a new generation of power = plants that use efficient and environmentally friendly natural gas. Regulators = are cracking down on utilities with older coal-fired plants that violate = clean-air standards. Analyst Christensen says some 22 new natural-gas power = generators will crank up this summer. The strong market has caused a pick-up in drilling, but not fast enough to = meet demand until the middle of next year. In the meantime, ``every single gas = well in the U.S. and Canada is producing at maximum rate, 365 days a year--and = there is still no spare capacity,'' says Mark G. Papa, chief executive of EOG Resources Inc., a Houston exploration and production company. That's good news for EOG and other outfits like Anadarko Petroleum and = Apache Corp. Donaldson, Lufkin & Jenrette Securities Corp. analyst David C. = Bradshaw estimates cash flow at the exploration and production companies he tracks, which are heavily weighted toward natural gas, will jump 50% this year over = 1999. Apache CEO Raymond Plank predicts his cash from operations will swell to = more than $1 billion this year, from last year's record $728 million. He's = devoting that surplus to more drilling, boosting his budget by 50% to $600 million. Moves like that should eventually mean more gas and lower prices for = consumers. But until then, they'd better be praying for another warm winter. Copyright 2000 By The McGraw-Hill Companies, Inc. All rights reserved.