- The Washington Times - Tuesday, December 12, 2000

From combined dispatches

Natural-gas prices soared to a record high yesterday as a blizzard socked the Midwest and forecasts predicted bitter cold for at least the next few days.

The soaring prices could almost immediately show up as increases in consumers' winter heating bills, analysts said. The government is predicting the surging prices will raise home-heating bills by 50 percent from a year ago.

The Federal Energy Regulatory Commission is investigating the causes of a fourfold rise in natural-gas prices this winter. Also, the Senate Energy Committee plans a hearing today to ask the natural-gas industry about inventories, which are 17 percent lower than a year ago, and prices, which have jumped 45 percent this month.

Some industrial users, such as fertilizer maker Terra Industries Inc., say they are selling the gas they have contracted to buy because they can earn higher profits than if they made products with it.

Natural-gas futures rose as much as 13 percent, hitting a high of $9.65 per 1,000 cubic feet in regular trading on the New York Mercantile Exchange after surging as high as $9.86 in electronic trading overnight. January natural-gas finished up 82.9 cents to $9.41 per 1,000 cubic feet.

Phil Flynn, vice president and senior energy analyst at Alaron Trading Corp. in Chicago, said a storm that was expected to dump up to a foot of snow on Chicago raised fears that utilities may not have enough natural gas stored up to get through a harsh winter. Natural gas heats 90 percent of the homes in Chicago, he said.

Cold weather in the Pacific Northwest has also contributed to the rise in prices, he said.

"It's more of a psychological situation than a real situation right now," Mr. Flynn said. "I would expect that the first big break in the weather will bring a break in the market."

Another factor in yesterday's gains was federal regulators' approval Friday of plans to lift price caps on wholesale California electricity to ease that state's power crunch, Mr. Flynn said. The order means the $250 per megawatt hour limit for wholesale electricity can be exceeded if the sellers can justify the costs.

Natural gas, once thought of mainly as a source for winter heating, has become a year-round fuel used to generate the electricity that powers air conditioners and computers. But that rise in use has not been accompanied by an equal growth in capacity, meaning the resource is in short supply.

Weekly data released last week by the American Gas Association showed a draw of 73 billion cubic feet from U.S. inventories of natural gas. The decline was not as severe as some traders had feared, but it still has been driving prices higher because supplies are considerably lower than year-ago levels.

Bill O'Grady, director of futures research at A.G. Edwards and Sons in St. Louis, said the timing of yesterday's snowstorm early December has utilities concerned about shoring up their inventories.

"Inventories aren't the tightest on record, but they're tight," Mr. O'Grady said. "The market is essentially auctioning off the last molecules of supply to the highest bidder."

Mr. O'Grady and Mr. Flynn said consumers should be prepared for utilities to pass along the higher natural-gas prices in their heating bills this winter.

In other trading at the New York Mercantile Exchange, January crude oil rose $1.06 to $29.50 per barrel, January unleaded gasoline was up 2.88 cents to 76.54 cents a gallon and heating oil for January delivery rose 3.85 cents to 98.27 cents a gallon.

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