Soaring Natural Gas Prices Hold Good, Bad News for States


From Washington to New Jersey, states are coping with price spikes in the nation's $51 billion natural gas industry. In Indiana, Democratic Gov. Frank O'Bannon is weighing suspending his state's sales tax on the clean-burning fossil fuel.

Experts say industry developments will ease natural gas prices nationwide, but the bad news is that relief won't come in time to lower costs by winter.

Unlike the $210 billion electric industry, where deregulation is viewed as a factor in escalating utility bills, spiraling natural gas rates can be traced to supply and demand.

"We saw very low oil and gas prices until recently," says Jonathan Cogan of the federal Department of Energy. "That acted as a disincentive to add additional production."

Specifically, hundreds of natural gas drillers simply packed up their equipment, dismissed workers and folded their tents, leading to decreased supplies of natural gas, not to mention much higher prices for the commodity. The spot wellhead price of natural gas had zoomed to $3.97 per billion btu last month, compared with $2.12 per billion btu in July 1999, according to the Department of Energy.

New Mexico was expecting an extra $34 million in revenues, thanks to the burgeoning price of oil and gas extracted from within its borders. Wyoming is also anticipating a windfall driven by soaring energy costs.

Elsewhere, the growing cost of natural gas is simply bad news. In Iowa, heating bills are predicted to be anywhere from 48 to 50 percent higher this winter, which translates to roughly $160 to $200 more than last year, the Des Moines Register reported. That could mean the Iowa Bureau of Energy Assistance can help fewer low-income Iowans pay their heating bills than in the past.

Earlier this month, Washington's Utilities and Transportation Commission allowed power companies to charge higher rates for electricity due to a hike in natural gas wholesale prices.

In New Hampshire, residents are paying 30 percent more for natural gas this summer than during the dog days of 1999.

Officials in Missouri fear high natural gas prices could damage a program designed to protect consumers from spikes in fuel costs, the Kansas City Star reports.

New Jersey's two largest public utilities have petitioned the state's Board of Public Utilities for rate increases that would force residents to pay an extra $20 per month for natural gas once winter rolls around.

Deregulation was introduced to the gas industry about 12 years ago in order to keep costs down. In addition to the District of Columbia, at least 19 states have introduced competition to their natural gas markets. They are California, Colorado, Delaware, Georgia, Illinois, Indiana, Maryland, Massachusetts, Michigan, Montana, Nebraska, New Mexico, New York, Ohio, Pennsylvania, South Dakota, West Virginia, Wisconsin and Wyoming."Since the introduction of competition in the natural gas marketplace, what consumers are actually paying for natural gas has actually come down over the last 10 years, says Daphne Magnuson, a spokeswoman for the American Gas Association.

Wholesale producers of natural gas profit when wholesale costs skyrockets, not utilities, says Magnuson, whose Washington, D.C.-based organization represents 190 investor-owned gas utilities.

Part of the reason natural gas demand has risen so sharply can be seen in New York, where plans to build a massive natural-gas fired, 1,080-megawatt electric plant in Greene County, near the Hudson River were recently approved. In New Mexico, construction of a 550-megawatt power plant is being considered.

"The fuel of choice for new (electricity) generating plants is basically gas," says Cogan with the Department of Energy. "We're projecting that will continue. Initial capital costs are smaller for natural gas plants."

Nationwide, demand for electricity has been growing about 2 percent annually, thanks in part to the robust economy and increased usage of electronic devices, especially computers.

That's led utilities to tap deeply into underground storage depots, further increasing demand for the fuel.

Natural gas drillers are currently working feverishly to get more product to the marketplace, lured by wellhead prices comparable to those of the mid-1980s in inflation-adjusted terms, according to the Department of Energy.

Natural gas prices will fall, but probably not until spring 2001 at the earliest, says Bob Cave, executive director of the American Public Gas Association, which represents utilities owned by municipalities.

"Once you start drilling, you can't immediately put it (natural gas) on the market," Cave says.

Gov. Tony Knowles is inviting governors from Midwest states to meet with him in Columbus, Ohio, next month to discuss the possibility of bringing Alaska natural gas to theregion, the Fairbanks (Alaska) Daily News-Miner reported Wednesday.

Knowles, besides being governor of a gas-rich state, ischairman of the Interstate Oil and Gas Compact Commission.

The meeting will "look at ways that Alaska's tremendous supply can address growing needs, growing demand for natural gas in domestic as well as international markets," the newspaper quoted Knowles spokesman Bob King as saying.


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