Gas prices to fall further:
07/28 11:08
Surge in Gas Supplies Lowers Costs for Homeowners, Companies
By Bradley Keoun
Canton, Ohio, July 28 (Bloomberg) -- For Timken Co., the largest U.S. bearings maker, this year's 68 percent plunge in natural gas prices means not only lower energy bills but also freedom from straining waste oil for use in its boilers.
After record prices last year doubled gas costs, the Canton, Ohio-based company converted some of its factory boilers to burn oil recovered from grinding machines. This year's price drop will reduce costs by $10 million, or 22 percent, providing relief from the impact of reduced sales as the economy slows.
The price drop is ``monumental,'' said Peggy Claytor, a senior government affairs specialist at Timken, who once managed company energy purchases. ``It's tough enough with sales being off, so fortunately it helps that at least our internal costs are declining.''
Lower prices also are good news for U.S. homeowners, who saw heating bills jump 65 percent last winter as increased demand from power generators during the summer left inventories precariously low. With supplies rebounding to 14 percent above year-ago levels, another surge in gas prices this winter is unlikely.
``The supply and demand balance has changed significantly,'' said John Seaman, energy supply manager at Ispat Inland Inc., a U.S. unit of Netherlands-based Ispat International NV, the fourth- largest steel producer. ``We're looking for gas prices to drop further. Supply is overshooting the needs now.''
`Awesome' Gas Bills
Natural gas futures prices quadrupled last year, as a host of new gas-fired power plants started up during the summer, limiting the amount of fuel available to store for winter use. The coldest November and December in more than a century drained inventories to their lowest year-end levels since industry record-keeping began in 1993.
``Awesome'' gas bills hurt consumer spending and were a ``significant part of the increasing unit costs'' at U.S. companies, Federal Reserve Chairman Alan Greenspan told a Senate committee this week. The price drop this year is ``opening up consumer purchasing power'' and will improve profit margins, he said.
Gas futures, which reached a record $10.10 per million British thermal units on the New York Mercantile Exchange in late December traded at $3.167 on Friday.
For Timken, the decline means that gas costs that doubled in 2000 to $45 million will drop to an estimated $35 million this year, Claytor said. That will make it cheaper to heat-treat tapered roller bearings and keep factories warm during the winter. Gas accounts for 7 percent of the company's production costs, she said.
The decline also enabled the company in February to switch back to gas in boilers that had been converted to waste oil in November, she said.
Inventories Rebound
Since late March, when distributors began injecting gas into underground storage tanks for next winter, U.S. inventories have risen 1.5 trillion cubic feet, a record for the period. At that pace, supplies by late August would reach levels seen three years earlier, when prices fell as low as $1.61 per million Btu.
``We're halfway through the injection season, and storage is two-thirds full,'' said Steve Kurmas, senior vice president of gas supply operations at Detroit-based DTE Energy Corp., which has 1.2 million gas customers in Michigan. ``I wouldn't anticipate gas prices this winter will get anywhere near last year's peak.''
So far this year, the number of U.S. cooling degree-days -- an index used by the National Weather Service to gauge air- conditioner use -- is 11 percent below normal and 18 percent lower than year-ago levels. That's reduced gas consumption by power plants that account for about a third of U.S. demand.
Increased Production
In the second quarter, gas demand from manufacturers and electric utilities was down 1.9 percent from year-earlier levels, according to U.S. Energy Department estimates.
A tripling in the number of rigs drilling new gas wells during the past two years is beginning to boost production, helping to replenish supplies, according to Lehman Brothers analyst Thomas Driscoll. Production in the second quarter was up 1.3 percent from a year earlier and may be up as much as 4 percent by the final three months of the year, he said.
Anadarko Petroleum Corp., an oil and natural gas producer in Houston, reported this week that its second-quarter gas output in North America tripled over year-ago levels, boosted mostly by its purchase in July 2000 of Union Pacific Resources Group. Taking into account the acquisition, production was up 20 percent, according to company spokeswoman Anne Pearson.
``You don't have enough storage to take the increase in production,'' said Chuck Daverio, vice president of energy supply at Brooklyn, New York-based utility Keyspan Corp., which has 1.6 million gas customers in the New York City area. ``Given what I see in the market today, our customers will probably be paying less for gas than they did last winter.''
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