In the WSJ...
December 5, 2000
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Falling Northeast Temperatures
Push Natural-Gas Prices Higher
By PETER A. MCKAY
Staff Reporter of THE WALL STREET JOURNAL
Natural-gas prices, which already had been rising all year, shot up 11.4% to an all-time high at the New York Mercantile Exchange Monday in reaction to cold weather in the Northeast and forecasts of more to come.
For consumers, the price surge -- putting natural gas at more than triple the year-ago level -- could show up in home-heating bills soon.
Even those who use heating oil could see an increase, analysts say; some customers may begin substituting heating oil for gas if the latter remains expensive and trigger a run-up in heating oil. That could occur despite a drop in the price of crude oil, from which heating oil is refined. Monday, the natural-gas rally buoyed heating-oil prices by 3.8%, or 3.76 cents per gallon, to $1.0084.
In some ways, improbably, natural gas is rallying as a New Economy play. Demand for natural gas has increased in recent years in part because of the increased use of computers, which require electricity, often from gas-fired power plants. That has been depleting reserves and driving up prices by a total of 218.9%, or more than $5, since a year ago.
After Monday's trading, in which January-delivery gas prices on the Nymex leapt 76 cents to $7.433 per million British thermal units, some analysts openly speculated that the country's depleted gas stores may soon hit zero. Without that cushion, consumers' monthly bills would be exposed to the slightest fluctuations in the wholesale market -- where prices don't seem to be declining soon.
"The panic hit today" in the markets, said analyst Phil Flynn, of Alaron Trading Corp. in Chicago. "This market kind of snuck up on us. If you go back three years, it looked like we had enough gas to last forever."
The market was so harried Monday that Nymex announced an across-the-board one-third increase in its margin requirements to trade natural gas, effective with tonight's after-hours trading. In the market, margin is the portion of a contract's value that must be on deposit to guarantee a trade; exchanges raise margins when markets gyrate.
The so-called cash market for natural gas, or the off-exchange price for immediate use, has been even more volatile in some areas, especially in energy-strapped California, where it hit $20 per million BTUs Monday.
"At this point, the gas price is so high that we're technically in no man's land," said analyst John Kilduff, of Fimat USA Inc.
The run-up may have started in late June when prices hit a then-all-time high of $4.686 per million BTUs, mostly from demand for gas to generate electricity for air conditioning, Mr. Kilduff said.
It was the first time that natural gas had hit such a high in the summer, and analysts said it signaled a fundamental shift away from gas's traditional importance as a commodity primarily for winter heating.
Now that winter is approaching fast, prices are soaring, in large part because of unusually low storage rates. As of Nov. 24, the American Gas Association estimated that there was 2.502 trillion cubic feet of gas in storage, about 11% lower than the five-year average for that date.
The focus on natural is a switch from last winter, when a heating oil was in the spotlight. Then, a crude-driven heating-oil price spike triggered a congressional outcry and consumer accusations of refiner price-gouging (no wrongdoing was ever found). Crude prices, which also have been soaring, though not as much as natural gas, fell 82 cents Monday at Nymex, to $31.23 a barrel.
After Monday's buying, many analysts expected natural-gas prices to fluctuate in the coming day largely on weather news, including a possible drop in the coming days if temperatures don't remain low.
"I don't know if the market's that strong to maintain what happened today without the weather cooperating," said Derek S. van Eck, president of Van Eck Global.
Nymex natural-gas margins increased to $10,000 per contract for clearing members; $11,000 per contract for nonclearing members; and $13,500 for nonmembers. One Nymex contract covers 10 billion cubic feet of natural gas, which is worth $74,330 according to Monday's prices. |
