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Katrina, Accidents to Result in Higher Billings, Mont., Energy Prices

Posted on: Sunday, 18 September 2005, 18:00 CDT

Sep. 17--Hurricane Katrina may have destroyed large sections of the American Gulf Coast, but she also took straight aim at other U.S. regions by boosting the cost of heating homes this winter and filling gas tanks.

So get ready for sticker shock this winter on all your energy bills.

The U.S. Energy Department predicts that Katrina's damage to the Gulf's energy production will drive up natural gas prices as much as 71 percent in the Midwest.

Like natural gas, coal prices are also rising sharply.

Stephen Doyle, president of Doyle Trading Consultants in Grand Junction, Colo., consults the buyers and sellers of coal, as well as equity traders.

Prices have jumped 50 to 72 percent so far this year for Powder River coal, he said, rising 6 percent in the first week of September.

Fuel surcharges on the dozens of coal trains that rumble through the basin each day are one factor.

"We've seen everything from 30 to 40 percent increase for transportation hauls that are really going far to the coast and as high as 100 percent for the hauls that are within 300 to 400 miles," Doyle said.

Coal still fuels most of the electrical energy for the United States, and the richest deposits in the nation lie in northern Wyoming's Power River Basin. In addition to price increases, there is a supply shortage because of accidents.

Shipments from the basin to Midwestern utilities dropped 10 to 15 percent this summer after a pair of spring derailments damaged Wyoming's major coal route.

In May, after heavy moisture and coal dust caused instability in the rocks, or ballast, under the tracks, a BNSF coal train derailed between Wright and Douglas, Wyo. The next day, a Union Pacific coal train derailed, severely damaging 60 miles of the route.

Some Midwestern power companies switched to more expensive natural gas to meet demand while repairs are made.

"Repairs are under way, and we expect to have completed the track improvements by the end of the year," said Burlington Northern Santa Fe spokesman Gus Melonas.

Despite the sharp price increases, Western coal remains competitive, Doyle said.

"Even with $12-per-ton prices in the Powder River Basin and higher, it still is cheaper than East Coast prices," Doyle said.

In California, three utilities are warning that residential bills for natural gas could rise more than 40 percent. This rivals price increases last seen during the energy crisis that led to brownouts and blackouts in 2001 and 2002.

No such estimate is available for the Rocky Mountain states, but rising electricity prices already have cost jobs. Advanced Silicon Materials of Butte laid off 20 people Monday and 20 more at its Moses Lake, Wash., plant.

Last spring, Renewable Energy Corp., of Oslo, Norway, bought ASiMi from a Japanese company. ASiMi makes products used in the semiconductor industry.

The new owners said the cuts were necessary because there were too many employees for a changing market and because its $24 million electricity bill is expected to jump $8 million next year.

How much energy and gasoline prices will rise depends on how long it takes to restore Gulf oil rigs to full production. The area produces 29 percent of the U.S. domestic oil production.

During the heart of Montana's harvest recently, Don Fast was cutting spring wheat north of Glasgow. As his combine rolled along, he fretted about high fuel costs taking another bite out of his paycheck.

Fast, who chairs the Montana Wheat and Barley Committee, said record crude oil prices have doubled the price of fertilizer. On top of that, fuel surcharges of 8 percent to 11 percent imposed by BNSF last spring make energy costs his biggest nightmare.

"It's just going to be staggering," Fast said. "You walk up to a combine, a tractor with a grain cart and a couple of trucks every morning, and those bills have essentially tripled."

BNSF rates in Montana, already some of the highest in the nation, rose again in August. This increase prompted protests by Gov. Brian Schweitzer and Sen. Conrad Burns, R-Mont., and demands for a rollback.

The railroad has declined.

For Fast, these costs are eating up a third of his harvest.

"It's a simple fact. So for every 100 bushels we raise, 33 percent of it goes for freight," he said. "It may be higher now, but it's a staggering charge."

Although there's no immediate direct impact on Montana grain shippers, barge rates shot up to unbelievable heights right after the storm hit Aug. 29.

Layne Carlson, corporate secretary of the Minneapolis Grain Exchange, said prices reacted right after the storm hit Aug. 29.

"I've heard barge rates are up 1,000 percent in Memphis and 500 percent in our area," he said. The rates are expected to come down, he said, as barge traffic returns to normal.

About 25 percent of the grain grown in the U.S. is exported. Half of that goes out through the Gulf ports along the Mississippi Delta. Most of Montana's grain is shipped by rail to Portland, Ore.

The hurricane is having only a minor dent in the demand for rail cars and grain shipments in the Northwest, according to Melonas, who is based in Seattle.

"Overall, there is more demand for service systemwide, and this has some impact on grain," he said. "However, it is too early to provide specifics on the overall effects."

Transportation consultant Terry Whiteside, of Billings, said the hurricane's effects on rail traffic will be primarily in the South at first.

Katrina will affect Montana shippers more when rebuilding begins, Whiteside said.

"Lots of big, heavy construction material will want to be moved by rail.

To the extent there is congestion in any form, it will slow our movements down," he said.

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To see more of the Billings Gazette, or to subscribe to the newspaper, go to http://www.billingsgazette.com.

Copyright (c) 2005, Billings Gazette, Mont.

Distributed by Knight Ridder/Tribune Business News.

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BNI, REH,

Source: Billings Gazette, Billings, Montana

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