Gas Prices Are Key In California Power Auction
By JOHN EDMISTON
Of DOW JONES NEWSWIRES
HOUSTON -- Energy companies bidding in a California power auction that's now being held on the Internet say bids will be strongly influenced by their forecasts of natural gas prices.
The companies didn't want to comment on where gas prices are likely to go, but analysts said they expect prices to be much lower than they have been in the last several months.
California's Department of Water Resources began accepting bids Tuesday via the Internet. The auction remains open until 12 p.m. Pacific Standard Time Wednesday.
California hopes to see affordable bids from energy suppliers because recent wholesale prices have pushed Southern California Edison (EIX) and Pacific Gas & Electric (PCG) to the brink of bankruptcy.
Dynegy Inc. (DYN) Chief Operating Officer Steve Bergstrom Tuesday refused to be specific about forward pricing curves for gas, calling that information proprietary.
"(That's) a significant component in the company's proposed bid," Bergstrom said.
But Art Gelber of Gelber & Associates, a Houston-based assets resources company, predicted gas prices of $2.80-$3.50 per million British thermal units in the next decade.
Prices will be lower because the electric power market will have completed its transition through deregulation, Gelber added.
The perceived shortfall of gas in storage will be mitigated by lower demand from a warm winter or by new production brought to the market by recent high prices.
Dynegy's Bergstrom had a similar outlook for prices.
"I can tell you that the more forward you go, the lower prices get," he said. "That's fairly consistent with the way prices move in the natural gas industry."
Dynegy intends to participate in Tuesday's California power auction, Bergstrom said. He suggested that the auction could help the state stabilize its skyrocketing power prices.
"We do this sort of (bidding) all the time," Bergstrom said of Tuesday's auction. "It's just generally not so public."
Enron Corp. (ENE) said it's still considering whether to participate in the auction. El Paso Energy Corp. (EPG) spokesman Mel Scott said he didn't know whether El Paso would participate.
Analysts generally expect that by 2005 gas prices will climb above $3.90-plus per million British thermal units. That $3.90-plus range is the range shown for 2003 on the New York Mercantile Exchange.
Prices could average closer to $5/MMBtu, said Gelber. Prices could go higher or lower depending on market conditions.
On Tuesday, the 12-month strip for this year is at $5.78/MMBtu, about $1.25 below February's $6.96-$7.09/MMBtu range on Tuesday.
Traders in recent days have raised the price at which they offer five-year contracts for electricity. Power generators are rushing to secure sufficient gas supplies, used to power most generation in California, in anticipation of selling power to the state under long-term contracts. |
