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Gold/Mining/Energy : Oil & Gas Price Economics -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (219)	6/28/2000 6:45:00 AM
From: kingfisher	Read Replies (1) \| Respond to of 350

Natural-Gas Prices Climb With Heat to All-Time High By PETER A. MCKAY Staff Reporter of THE WALL STREET JOURNAL It seems as bizarre as throwing on a scarf and sipping cocoa on the beach in July. Once again, futures prices of natural gas -- a product known more for getting people through the winter -- are heating up with the weather. The commodity's price hit an all-time high Tuesday of $4.686 per million British thermal units -- more than double the year-ago price of $2.258 -- continuing a run-up that has become a regular summer event since 1998 but which has been less-publicized than gasoline's price ride. Blame the heat: As in past years, Tuesday's 12.6-cent rise at the New York Mercantile Exchange came after many of the country's utilities, which use gas to fire their electricity turbines, reported frenzied power demand over the weekend as sweaty rate-payers cranked up their air conditioners. In part, the jump in natural gas has helped support the more-publicized gasoline and crude-oil price increases recently, since customers may begin to substitute refined petroleum products such as diesel for natural gas if it stays expensive. But it wasn't always this way in the natural-gas market. It used to be that peak gas demand came each winter, with summer as the off-season, since retail customers' primary use for the commodity is heating. A series of sweltering summers, particularly in the nation's big cities, has changed that, increasing the importance of electric utilities' gas usage. Traders and analysts say that has thrown the gas market out of whack and could yet have more visible implications, including more blackouts this summer and, once the country's gas reserves are further depleted, another gas price spike this winter akin to last year's heating oil run-up. "The past two years, the demand has become inverted seasonally, and this could very well turn out to be the third year," said energy trader Guy Gleichmann, of FSG International. "Supply is clearly not keeping up with demand, particularly due to power generation." If a real shortage develops, Mr. Gleichmann and other market watchers said, utilities' electrical generation could be hurt, possibly causing outages or at least headaches enclosed in ratepayers' monthly power bills. "There'll be natural gas for the electric companies, but be prepared to pay," warned Fimat USA Inc. analyst John Kilduff, who expects prices to hit $5 per million BTU's in the short term. At the heart of the increase has been the simple inability of producers to build up the country's gas reserves amid soaring usage. According to the American Gas Association industry group, gas stores have been growing by an average of 42 billion cubic feet each week since the prime delivery season started in April, down 24% from the year-ago average of 55 billion cubic feet. At the same time, the country is increasingly reliant on natural gas for its electricity power generation, said policy analyst Nathaniel Green, of the Natural Resources Defense Council, a New York environmental lobbying group. He estimated that about 14% of overall U.S. kilowatt usage, and 21% of summer electricity, is generated using natural gas. However, he said those numbers could increase because of the number of new generators slated to use gas. "Almost everything people are building at this point is natural gas," Mr. Green said. "As fossil fuels go, it's still the cheapest, most efficient and easiest to get permitted" by regulators. Mr. Green estimated that 60 or so power plants have been proposed in New York state in the past few years, almost all of them fired by natural gas. Mr. Kilduff said many utilities also are becoming more savvy about using the natural-gas futures markets to hedge their electricity risk. Such activity may help explain Tuesday's move, if electric utilities rushed in to buy natural gas following a weekend of heavy consumption. Since May 24, with one exception, Nymex's front-month natural-gas contract has held above $4 every day. Some marketers are talking about a run to $7 per million BTU's by the winter. In a sure sign of a supply-starved market, Tuesday saw prices move into a so-called backwardation, a market condition in which the nearby delivery month has a premium over deferred months, said Tom Saal of Pioneer Futures in Miami.