- The Washington Times - Wednesday, March 13, 2002

NEW YORK (AP) Homeowners saved on natural gas bills this winter because of ample supplies and mild weather. With inventories at record highs and industrial demand still lagging, prices are expected to remain low through spring and perhaps summer.
Although prices crept somewhat higher in the final weeks of the heating season as colder weather hit the Northeast and Midwest, analysts say the mostly domestic fuel source will stay relatively inexpensive because supplies far outweigh demand.
"We have an unbelievable amount of storage," said Mike Fitzpatrick, a trader at Fimat USA in New York.
At the beginning of March, natural gas storage was about 1.9 trillion cubic feet more than double last year's level and 45 percent higher than the monthly average from the past five years. The amount of gas in storage by the end of winter is expected to be higher than at any other time since 1992.
If inventories remain high through summer, consumers could see the benefits when they start running their air conditioners. Natural gas is used to generate more than 15 percent of the nation's electricity.
The Energy Department predicts natural gas prices will be half as high in 2002 as they were in 2001, averaging $2.04 per 1,000 cubic feet. Natural gas for April delivery finished yesterday at $3.02 on the New York Mercantile Exchange.
Last winter, when supplies were tight, industrial demand was strong and wholesale prices soared briefly above $10 per 1,000 cubic feet.
This year's reversal of fortune is largely attributable to the estimated 15 percent decline in homeowner and commercial demand, according to the American Gas Association.
Residential and commercial demand makes up more than one-third of all natural gas consumption.
Much of the decline this year came about because winter temperatures were 20 percent higher nationwide, on average, compared with last year, said Paul Wilkinson, an economist at the industry group.
"It was a gift from Mother Nature," said Fadel Gheit, an energy analyst at Fahnestock & Co. in New York.
Prices also came under pressure because of slack industrial demand as manufacturers scaled back production in response to the recession.
In an effort to balance supply and demand, drilling activity has declined dramatically in recent months. The number of rigs actively exploring for oil and gas in the United States fell to 769 last week, down from 1,158 a year ago, according to Baker Hughes Inc. of Houston.
Of the rigs running nationwide, 624 were exploring for gas.
Still, inventories are not expected to dwindle anytime soon. It would take a hot summer for inventories to be drawn down to the point that would cause prices to rise to year-ago levels, Mr. Fitzpatrick said.
"To get prices over $4, cattle would have to start dropping dead in Texas," he said.


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