Brits eye higher natural gas prices; Americans lower

Wholesale prices for natural gas in the UK could more than double if the next winter is severe, according to the 2006 Gas Market Review. The report said that would mean higher costs for residential customers.

Britain’s Energy Contract Company, publisher of the annual report, said wholesale prices could climb to $9.14 a therm, compared with the previous peak of $3.56, provided temperatures drop to a level experts anticipate only once in five or 10 years.

Louise Boddy, who works for Heren Energy, producers of price indices for the industry, concurred with that analysis, terming it a “realistic scenario.”

We may be facing shortages, price-spikes, rolling blackouts and pandemonium. The shortfall in natural gas production from the Gulf stands at about 13 percent.

The UK’s The Observer stated a severe winter also would boost the chances of large industrial gas users being rationed or cut off for a short period. Britain is in a far more severe bind than we in the U.S.

The Department of Trade and Industry is expected to release its own analysis of natural gas supply, prices, and the next winter season, which may be released soon.

Part of the reason for the decline in natural gas supplies is the drop off in North Sea production and the scarcity of storage facilities in Britain. New pipelines are under construction, and new liquid natural gas ports have been built, but they may not be ready for winter, nor be capable of meeting the demand.

While Britain faces the prospect of a tight supply next winter, on this side of the Atlantic, forecasts are for dropping prices. The price of natural gas has plunged about 50 percent since Hurricane Katrina slammed the Gulf Coast last fall.

While crude oil remains around $70 a barrel, experts say the spot price of natural gas is equivalent to the energy potential of oil at $41 a barrel—a gap that is prompting businesses and utilities to begin switching to gas. In addition, there is a strong inventory of gas in storage.

Neil Gamson, of the U.S. government’s Energy Information Administration, said: “If we have no hurricanes in the Gulf, and say the summer is not particularly brutal, we’ll go into the winter heating season with some relief.”

Milder mid-winter temperatures caused natural gas prices to tumble as supplies increased when newly-drilled wells in the West began production. The EIA said average natural gas prices post-Katrina topped out at near $12 per thousand cubic feet.

The more welcome prices for natural gas come as a key House committee has drafted a bill that would permit coastal states to determine whether to allow natural gas drilling on the Outer Continental Shelf. The U.S. Minerals Management Service estimates that 420 trillion cubic feet of gas lies just offshore. That’s enough to supply the U.S. with 14 to 16 years of gas at present rates of consumption. A spokesman for Rep. John Peterson (R-Pa.) Chris Tucker, said: “The numbers we’re using are very conservative.” Tucker was quoted in an article in the Christian Science Monitor.

The article reported natural gas supplies are about 38 percent above the five-year average, according to the American Gas Association. Gas supplies are piling up even though production in the Gulf of Mexico is around 1 billion cubic feet a day under pre-hurricane levels, the Monitor reported. Chris McGill, managing director of policy analysis for the AGA, said: “About 2 percent of our total natural gas production is still off. But who knows? That could be permanently lost.”

Jim Owen, spokesman for the Edison Electric Institute, a trade group in Washington, D.C., said homeowners may have to wait for lower prices to move through the supply system. “If these lower gas prices were sustained for some time,” he said, “at that point we would see a gradual easing in retail markets over a period of time.”

A consumer price-break could not come at a better time for low-income Americans and even the middle class. Many still are feeling the sting of high prices from last fall’s price hike.

“If prices could come down, it would be terrific this winter for working people,” said Mark Wolfe, who heads the National Energy Assistance Directors’ Association in Washington, which oversees energy aid to poorer consumers.

“We’re breaking all the records for people getting energy assistance to pay their bills,” he said.

From the July 12-18, 2006, issue

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