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PNM Expected to Set All-Time-High Gas Prices

Posted on: Tuesday, 30 August 2005, 18:00 CDT

Aug. 30--The heating season hasn't even started, but Public Service Co. of New Mexico announced its tentative cost for natural gas next month will reach an all-time high of 91.24 cents per therm.

That's also almost 37 percent more than the August price of 66.82 cents per therm and well over last September's cost of 57 cents. PNM's highest previous price for natural gas was 76 cents per therm in March 2001.

PNM will set the final price today with the state Public Regulation Commission, which oversees utilities and approves energy rates. "It could change slightly, up or down. It's not likely to go down," PNM spokesman Don Brown said.

September's high price "is a signal where prices are headed this winter," Brown said. "And the hurricane doesn't help." Next month's average bill is expected to reach an estimated $31.73.

PNM is not allowed to profit on the price of gas -the price customers pay is the price paid by the company -and makes its money through distribution.

A major gas-gathering facility in Louisiana, the Henry Hub, was shut down Sunday when Hurricane Katrina approached, but it returned to full operation Monday.

"Even a temporary shutdown can affect prices for months," Brown said. "Now is the time for gas companies to purchase and store gas. There's no storage going on right now."

PNM expects the price of natural gas in the coming winter months to be between 20 percent and 30 percent higher than it was last winter, Brown said. And that prediction was made before the hurricane struck Louisiana and Mississippi.

"It's made the situation worse," Brown said. "It's hard to quantify" the effect of the storm on future gas prices

PNM has purchased a certain amount of gas on the futures market, Brown said, paying between 75 and 80 cents per therm. The amount purchased at those prices will be sufficient for a warm winter. If the temperature is lower than usual, the company will have to buy gas at market price, which is more costly.

Bob Gallagher, executive director of the New Mexico Oil and Gas Association, said the price of gas is being driven higher by numerous factors, one that includes dwindling supplies and strong demand from China, India and elsewhere.

In addition, 95 percent of new electrical-generation plants use natural gas rather than coal. Those plants alone have driven up demand for gas by 5 percent per year over the past five years, Gallagher said. "Production is up only a half-percent," he added.

Natural-gas production, Gallagher said, is now in decline all over the United States, including in New Mexico's San Juan Basin, one of the major gas-producing areas in the country.

"The decline curve is 25 to 28 percent," Gallagher said. "That means for every four wells you used to have to drill, now you have to drill the fifth" to maintain the same level of production.

The higher price of natural gas will hurt not only citizens but small businesses, municipalities and school districts, Gallagher said. "They will have to do without something for them to be able to afford it."

Natural gas is not the only heating product that's headed higher.

"It's gonna get ugly," said Carlos Rael of Rael's Propane, a Santa Fe propane supplier. "I don't see the price of propane going down anytime soon."

The price hit $1.79 a gallon on Monday, Rael said, up several cents from earlier this month. The price topped out last winter at $1.69 per gallon.

"Who knows how high it will go this year?" Rael said. "Gas keeps going up, and propane follows right behind it."

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PNM,

Source: The Santa Fe New Mexican

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