Natural-gas prices rise with falling temperatures

www.stltoday.com By Patrick L. Thimangu Of the Post-Dispatch 02/24/2003 10:45 PM (P-D)

Natural-gas spot prices and futures rose sharply Monday amid fears that bitterly cold weather will raise demand for energy and bite into low gas inventories nationwide.

In the Midwest, average natural-gas spot prices nearly doubled at 16 delivery points surveyed by Bloomberg News, jumping from about $7.92 per million British thermal units to about $15.06. Gas for March delivery closed at $9.14 per million Btu on the New York Mercantile Exchange, the highest price in two years. In St. Louis, Laclede Gas Co. spokesman Rick Hargraves said the futures prices wouldn't affect immediately the utility's 630,000 customers in eastern Missouri. But Laclede likely will raise rates in March - when it's scheduled to make a purchase gas adjustment - if wholesale prices rise, he said.

The purchase gas adjustment reflects the wholesale price of natural gas and is applied to about 70 percent of a customer's bill. Last month, Laclede increased purchase gas adjustment rates from about 44 cents a therm - 100 cubic feet of gas - to 52 cents.

Scott Glaeser, manager of natural-gas supplies and transport at Ameren Energy Fuels &Services, a unit of Ameren Corp., said home-heating rates won't rise immediately. But he, too, warned that prolonged increases in futures eventually would trickle down to the wholesale and retail prices.

Ameren Energy buys natural gas for Ameren Corp.'s subsidiaries: AmerenUE, AmerenCIPS and newly acquired Central Illinois Light Co. The subsidiaries serve about 102,000 natural-gas customers in Missouri and about 408,000 in Illinois.

Glaeser and Hargraves said Laclede and Ameren customers won't be affected immediately by rising futures prices because both utilities have ample supplies in storage, bought during the summer months. Also, the companies have hedged gas purchases against higher wholesale prices.

But even without any rate increases, natural-gas customers at Laclede, Ameren and most of the Midwest likely will see high heating bills. The winter so far has been about 32 percent colder than last year, which was the third warmest winter in Missouri history. The National Weather Service forecast that temperatures in St. Louis would fall to 2 degrees Monday. Normally, average temperatures this time of year are a high of 48 degrees and a low of 30 degrees.

The cold weather along with fears of war with Iraq and the political and labor problems in Venezuela, a major oil producer, are pressuring energy prices in general, Glaeser said.

Propane from the terminal at Mont Belvieu, Texas, rose 5.5 cents, or 7.5 percent, to 78.75 cents a gallon Monday, the highest price since 2001, according to Bloomberg News. Heating oil for March rose 3.82 cents, or 3.5 percent, to $1.1467 a gallon in New York, the highest price since December 1979.

The energy increases came as the latest data from the Energy Information Administration showed the nation's natural-gas inventories were about 27 percent below the five-year average and 42 percent below last year.

Kate Warne, senior energy analyst at Edward Jones in Des Peres, said the combination of very cold weather and low inventories triggered high prices Monday.

"Normally, by the end of February the weather is not expected to go into the single digits in St. Louis," Warne said. "What's surprising is that it's this cold at this time of the season."

Another cause of higher prices: Natural gas production in the United States has been falling in recent years, Warne said. Old natural-gas wells are running low, and few new ones are being drilled, she said.

"Longer term, we will see higher prices. I think the era of very low gas prices is probably behind us, because the industry hasn't found a lot of new sources, they have not done a lot of drilling," Warne said.

Besides driving up demand, the colder weather also is hurting gas-drilling operations in some states, such as Oklahoma and Kansas. Ice and snow on the ground are making extraction of gas difficult, Glaeser said.

Bloomberg News contributed to this report.

Reporter Patrick L. Thimangu: E-mail: pthimangu@post-dispatch.com Phone: 314-340-8320