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Report is Mixed on Costs of Energy

Posted on: Thursday, 8 September 2005, 18:00 CDT

Sep. 8--Motorists might see gasoline prices fall by as much as 65 cents per gallon by December if Gulf energy production recovers quickly from Hurricane Katrina, but much of that gain will be lost in home heating costs that could rise 70 percent from a year ago.

The U.S. Energy Information Agency, in its first post-Katrina survey of the U.S. energy landscape, said Wednesday that crude oil prices are likely to remain in the $64-$68 per barrel range and that an improved supply of refined gasoline will push pump prices down from current averages of slightly below $3 per gallon.

But the agency said natural gas, already in short supply, is likely to remain in a price range of $11-$12 per 1,000 cubic feet as November and the winter heating season approaches. A year ago, natural gas traded for $6 per 1,000 cubic feet.

For the 60 million U.S. homes heated with natural gas, that 12-month price difference will translate into as much as 70 percent higher winter heating costs, the agency said.

Winter heating costs vary widely in Texas depending on residence size and outdoor temperatures. But average monthly home heating costs have risen from $70-$80 per month in the late 1990s to $130-$150 per month last year.

Rand LaVonn, a spokesman for Dallas-based Atmos Energy, which provides natural gas to 1.5 million residential and commercial customers in the Dallas-Fort Worth area, said: "We can only hope that the EIA prediction is wrong. But unfortunately, because of high demand and the hurricane, that doesn't appear to be likely."

Atmos, like other gas utilities, buys the gas wholesale and sends it to customers via pipelines. LaVonn said customers can moderate the price increases by weather-stripping, caulking and increasing the insulation in their homes, as well as by investing in programmable thermostats that adjust the heat according to time of day.

Even before Katrina, natural-gas prices had quadrupled since the beginning of this decade because of rising demand driven primarily from electricity generators, flat domestic production and the fact that the U.S. market is closed to the overseas imports that buttress U.S. crude oil supplies.

"Dramatic increases in domestic energy costs, assisted by everything from tight world oil markets to blistering summer heat to the ravages of Hurricane Katrina, have made for an exasperating summer for many consumers and have set the stage for a potentially expensive winter heating season," the EIA said.

The energy markets Wednesday reflected optimism from the return of up to 60 percent of Gulf energy production, which accounts for about 30 percent of U.S. oil and gas production.

Crude oil closed down $1.59 per barrel at $64.37 on the New York Mercantile Exchange. Gasoline futures dropped by 5 cents per gallon to $2.02. Crude oil, which traded below $65 on Aug. 6, had topped $70 on Aug. 30, and gasoline futures reached $2.90 per gallon by Sept. 1.

The oil markets have been comforted by the reopening of three of eight Gulf Coast refineries closed by the hurricane, new crude supplies coming from the U.S. Strategic Oil Reserve, shipments from Europe, and the resumption of production from the more than 1,400 offshore platforms in the Gulf opposite Mississippi and Louisiana.

Natural gas fell Wednesday by 46 cents to $11.20 per 1,000 cubic feet. However, although crude oil prices are slightly lower than before the hurricane, natural-gas prices remain almost 20 percent higher than before Katrina.

Predictions of natural gas as high as $15 per 1,000 cubic feet have abounded in light of continued high demand for the fuel, plus the upcoming winter heating season.

A big worry Wednesday on the Gulf Coast was that three major processing plants that separate propane and other liquids from the dry gas before it goes into the pipeline remained shut down.

The concern about natural gas prices comes from an expected increase in demand, as utilities fill their storage caverns before the winter heating season. U.S. natural-gas storage now amounts to 2.6 trillion cubic feet, the EIA said, still short of the 3.4 trillion cubic feet generally required for winter supply.

In Texas, Railroad Commission figures show that as of July 31, the state had 274.5 billion cubic feet in storage, down from 289 billion cubic feet on the same date a year earlier. Texas began last winter's heating season with 346 billion cubic feet in storage for what proved to a warmer-than-usual winter.

"Because of our climate, Texas is less of a factor in the national storage picture," said Bill Geise of the Railroad Commission.He notes that Texas' gas storage amounts to about 12 percent of the national total.

Those with electric heat in their residences won't get off free.

The EIA projects electricity increases of up to 30 percent this winter, based largely on increases that electricity providers are likely to request.

TXU Corp. of Dallas has served notice that it is likely to ask state regulators for another increase, and if the $11 per 1,000 cubic feet natural gas price holds for 20 days, it can base the new rate on that price.

The old base rate for electricity, approved by the Texas Public Utility Commission in May, was $7.87 per 1,000 cubic feet.

Electricity rates have risen 46 percent in Texas in the last three years primarily because natural gas, which powers about 50 percent of the electricity generation in the state, is the benchmark fuel price used to peg electricity rates.

Wholesale electricity prices, which averaged $20-$24 per megawatt hour in 2002 when Texas' deregulated its electricity markets, have ranged in the last week during the day between $55 and $135 per megawatt hour.

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Copyright (c) 2005, Fort Worth Star-Telegram, Texas

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ATO, TXU,

Source: Fort Worth Star-Telegram (Fort Worth, Texas)

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