- NEW YORK (Reuters) - U.S.
spot natural gas prices spiked to record highs on Tuesday as a bitterly
cold winter season in the eastern U.S. has sapped natural gas supplies,
setting the stage for higher energy bills this year, analysts said on Tuesday.
-
- A steady flow of arctic air has forced consumers to crank
up furnaces this winter as early predictions that a mild, El Nino winter
season would slow heating demand have long been forgotten.
-
- "We went into the heating season with unusually
high stocks, but winter started early and hasn't stopped," said Don
Murry, vice president at Oklahoma-based consultants C.H. Guernsey &
Co.
-
- On Tuesday, spot gas prices at Henry Hub, the wholesale
benchmark price point in Louisiana, shot up above $18 per million British
thermal units this week, an all-time high for spot gas and more than five
times the $3.30 average seen in 2002.
-
- Analysts say the price spikes will inevitably mean higher
heating and cooling bills for consumers later this year.
-
- The U.S. Energy Information Administration (EIA) estimates
that by the time gas makes it to the retail market, homeowners will be
paying about 15 percent more this year, a spokesman said.
-
- "We're estimating a 15 percent price increase but
there is additional consumption this year because of the weather, so actual
(heating) bills will be up more," he said, noting EIA's residential
gas outlook would probably be revised higher soon.
-
- Some 60 million U.S. homes -- about half the single-family
homes in the country -- use natural gas to fire their furnaces, according
to industry figures.
-
- DWINDLING STORAGE, OUTPUT
-
- This winter's unusually brutal weather has drained gas
inventories to near historic lows, with the latest EIA data showing supplies
have plunged to 43 percent below levels last year and are running at almost
30 percent below the five-year average.
-
- "The bottom line is that frigid weather came out
of nowhere which led to historically high (inventory) drawdowns and extremely
high cash prices," said Kristin Domanski at Energy Security Analysis,
an energy research firm in Boston.
-
- Some analysts said they expect supplies to fall to record
lows of about 700 billion cubic feet by the end of March, a hole that may
be tough to fill before next winter.
-
- Others are even more dire in their predictions.
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- "We could easily be under 500 bcf by the end of
March, and the market is just starting to recognize that," Murry said.
-
- Utilities typically build up inventories from April through
October to meet the peak November-March heating demand.
-
- Compounding the problem is a decline in output from the
nation's gas fields, which slipped 5 percent in 2002 and could fall again
this year as cash-strapped energy companies focus more on improving balance
sheets than finding supplies.
-
- Producers, hit by closer scrutiny from credit ratings
agencies after Enron Corp.'s ENRNQ.PK demise, have been slow to boost exploration
and production (E&P) budgets this year even though gas prices have
been on a steady uptrend for months.
-
- The latest data from oil services firm Baker Hughes BHI.N
showed 767 drilling rigs currently searching for gas, up from a low last
April of 591 but well below the 900-950 rigs many analysts believe are
needed just to keep production steady.
-
- Analysts, moreover, do not expect much help from Canada
in closing the supply gap, which typically exports enough gas to the U.S.
to meet about 15 percent of total demand.
-
- Canada is also suffering a downturn in drilling and stocks
there are also well below normal levels.
-
- Most analysts expect gas exports from Canada to languish
at current levels or even dip slightly this year.
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- KILLING DEMAND
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- While fears about a war with Iraq have been wreaking
havoc in the oil market, analysts say strong fundamentals are likely to
keep gas prices high regardless of whether the conflict is averted.
-
- "A key determinant of futures prices will be what
energy intensive users such as petrochemical, fertilizer, power producers,
etc. can afford to pay," Thomas Driscoll, managing director at Lehman
Brothers, an investment bank in New York, said in a recent report.
-
- While high prices are likely to spur voluntary conservation
and force some industrial users to slow output or close altogether, analysts
said the supply-demand balance was likely to remain tight at least through
this year.
-
- Manufacturing makes up about 40 percent of total gas
use, and with little hope of improving the supply picture this year, slowing
demand may be the only way to rebalance a tight market.
-
- Some analysts, who just last fall predicted that natural
gas usage would rise by 2-3 percent in 2003, now expect overall consumption
to fall 1-5 percent this year because of high prices.
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