Saturday, September 27, 2003

Heat worries ease


Natural gas stocks being increased

Staff and wire reports

Fears of sharply higher natural gas prices this winter are receding, as already-high fall prices are beginning to drop.

Cincinnati's Cinergy Corp. Friday said consumers can expect lower rates in October, compared with this month, even though the rate will be much heftier than a year ago.

Worries about winter costs were high this summer, when the amount of natural gas - the fuel used to heat almost 70 percent of Tristate homes - held in storage was at historically low levels.

But natural-gas futures fell Friday on the New York Mercantile Exchange for a second day, after a U.S. Energy Department report showed that stored gas supplies were growing - a development that suggests utilities won't need to buy as much from pipelines, at higher prices, during winter.

The Energy Information Administration now predicts that natural gas prices will be 10 percent to 15 percent higher this winter than last.

"The reality is if we have a normal winter and in some cases a slightly colder winter, (natural gas) will have a slightly higher price than last year," said Chris McGill, managing director of policy analysis at the American Gas Association. "But you can't control the weather."

Energy companies pumped 100 billion cubic feet of gas into storage last week, the biggest injection of supply ever for that time of year. And the government might report another large injection of supplies next week because of rising storage profits.

Utilities, however, had to pay high prices to buy the gas that they stored this summer.

As a result, the costs that Cinergy and others must by law pass onto consumers have risen. The Cincinnati-based utility now is adjusting those prices monthly. The September adjustment drove a typical residential customer's bill up to $115.51 a month - 54 percent higher than a year earlier.

On Friday, Cinergy released its October adjustment, with the typical residential customer's bill falling to $109.83 a month. Still, that's 46 percent higher than the $75.03 for October 2002.

Imports fill in

Federal officials continue to plan how to lower high heating bills over the next few winters.

Federal officials have focused on drilling for natural gas in the Rocky Mountains and Gulf of Mexico. But the nation's long-term energy thirst probably will be quenched by imports.

The era of cheap natural gas is over, experts agree, because demand for the clean-burning fuel by power plants, factories and homeowners is surpassing supply. Known U.S. natural gas reserves will last less than 10 years at current demand levels, according to Energy Information Administration data.

So while Congress proposes increasing tax benefits and reducing regulations to spur U.S. production and the Bush administration opens up federal lands to natural gas drilling, some U.S. companies have started tapping overseas supplies.

Natural gas imports should reduce wild price swings and possibly lower heating bills by 2007, when the overseas supplies start arriving in large volumes.

"Most areas of North America already have been heavily explored and drilled," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "Fortunately, the world is awash in gas resources without markets."

To transport natural gas by ship, it is liquefied by reducing its temperature to about minus 260 degrees Fahrenheit. Specialized ship terminals are needed to receive the liquefied gas, store it and then warm it up so it can be carried by pipelines.

Only four liquefied natural gas terminals operate in the United States, but at least a dozen more are on the drawing board. One in Cove Point, Md., which hadn't received a shipment since 1980, was reopened in July.

Cheniere Energy Inc., a Houston-based natural gas developer, plans to construct liquefied natural gas terminals in Freeport, Texas, with possibly two more along the Gulf Coast.

Reliance on shipping

The United States now produces about 84 percent of the natural gas it uses with nearly all imports coming by pipeline from Canada. Liquefied natural gas makes up only 1 percent of U.S. natural gas consumption, but Cheniere Chief Executive Charif Souki estimates that number will top 10 percent by 2010.

"The difference is, instead of coming by pipes from Canada, it comes by ship," he said. "It's very, very similar to what happened in the crude oil markets in the 1970s."

That worries some groups, including the Interstate Oil and Gas Compact Commission that represents domestic drillers. The United States should tap its own natural gas reserves before turning to imports, said Tod Bryant, a group spokesman.

"It just makes sense to look at the domestic situation first," he said. "I think we're in kind of a precarious situation with our dependency on foreign oil."

Imported natural gas won't start washing into the U.S. market in large quantities until 2007, according to industry experts, so prices are expected to stay relatively high until then. And cold snaps and heat waves that increase energy demands could cause prices to spike.

Higher natural gas prices - in some cases nearly double the rates of the 1990s - have cost U.S. consumers and businesses $100 billion since the start of 2001, according to Center for Energy Efficiency and Renewable Technologies, a Sacramento, Calif., group that supports conservation.

"I think we're going to see high prices continue," said Richard Ferguson, the group's research director.

State utility commissions that were hit with consumer complaints about high heating bills for the past four winters are readying an ad campaign to warn consumers that prices could be high again. They offer tips to cut heating bills.

Conservation

Here are some ways to cut winter utility costs.

Free

• Turn down water heater temperature.

• Use energy-saving settings on refrigerators and washing machines.

Low-cost

• Buy an insulating blanket for hot water heaters.

• Switch incandescent bulbs to compact fluorescent bulbs.

• Install programmable thermostats.

• Regularly replace furnace and heat-pump filters.

• Caulk leaky windows.

Expensive

• Insulate ceilings and walls.

• Replace old windows with energy-efficient models.

• Replace inefficient appliances.

Gannett News Service and Bloomberg News contributed.



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