In The News / Cold Sends Natural Gas Price Up 30%
The Globe & Mail
LILY NGUYEN
Monday, February 24, 2003
Calgary — Frigid weather sent natural gas prices surging by more than 30 per cent Monday, prompting fears that a looming supply crunch will mean sharply higher energy costs for consumers and companies this year.
On the New York Mercantile Exchange, the U.S. benchmark futures contract for March delivery soared by as much as 39 per cent to $9.20 (U.S.) per million British thermal units before settling at $9.14, up $2.53, a two-year high.
At the AECO C hub in Alberta, Canada's biggest trading point, spot natural gas prices hit a high of $16.10 (Canadian) a gigajoule after closing at $9.80 on Sunday. At the Dawn hub in Ontario, gas prices soared $8.28 to $21.91 a gigajoule, according to Bloomberg News. One gigajoule is about 0.9482 Btus.
Matthew Foss, a senior economist at the Canadian Energy Research Institute, said the situation is "worse now" than in the winter of 2000-01, when a record runup in gas prices prompted widespread industry shutdowns and as much as quadrupled the cost of residential heating in parts of North America.
"There isn't going to be enough gas to go around throughout this next winter," he said.
After Friday's explosion at a natural gas facility on New York's Staten Island rocked the natural gas and oil markets, chilly temperatures predicted by U.S. weather forecasters on Sunday for much of the continent upset the supply picture.
Gas buyers scrambled to secure supplies and short sellers hurried to cover their positions as storage levels dwindled.
"It set a bit of a panic into people who were short, and it may have triggered margin calls on the short seller," said Wilf Gobert, vice-chairman of Peters & Co. in Calgary.
The fact that crude prices are at elevated levels, too - the U.S. benchmark crude contract closed up 90 cents (U.S.) Monday at $36.48 a barrel - also doesn't help matters because it gives fuel switchers nowhere to turn, Mr. Gobert said.
Heating oil futures also followed natural gas higher, hitting a record before closing at a 23-year high. The contract for March delivery gained 3.82 cents to $1.1467 a gallon on the Nymex, its highest close for near-month delivery since December, 1979.
Although supply was tight in 2000, there was at least some chance for relief as producers revved up drilling activity and began pumping more gas to meet demand, Mr. Foss said.
No such relief is near now, he said. Petroleum producers that were whacked by a crash in gas prices in the second half of 2001 were leery of increasing activity until last month.
As a result, major increases in supply will be many months in coming.
Tim Evans, a senior energy analyst at IFR Pegasus in New York, agreed. "The frightening answer is it's going to take six to nine months before we start to see more supply."
As a result, Mr. Foss explained, gas supplies will remain tight through the traditional recovery period in the spring and the fall and will enter the high-demand winter season at insufficient levels.
Mr. Evans said that quickly shrinking U.S. inventories are on track to hit a historical low before this winter is out. As of last Thursday, they were at 1,168 trillion cubic feet, down 203 billion cubic feet for the week, according to the U.S. Energy Information Agency.
On April, 12, 1996, levels sank to 697 billion cubic feet.
"We're on a pace where we can be looking at a number like 600 billion cubic feet," Mr. Evans said. |
