- The Washington Times - Sunday, December 28, 2003

Homeowners face another winter of punishing heating bills with natural gas prices climbing again, raising the typical heating bill 6 percent or more from the high levels of last winter.

Despite predictions of a milder winter, the government has raised substantially the estimate of heating costs for the 55 percent of the nation’s homeowners who heat with natural gas, most of whom reside in the Mid-Atlantic, Northeast and Midwest.

Residential gas prices will average $9.24 per thousand cubic feet this season — a level not seen since the energy crisis of 2001 — socking homeowners with an average heating bill of $898 for the winter, officials said. The high residential costs reflect wholesale prices that have doubled or tripled from levels in the 1990s and frequently rise further on news of severe weather or supply shortfalls.

While local gas companies typically provide a cushion against high market prices by drawing first from lower-priced stores of gas, analysts say that homeowners should get used to the elevated prices seen today and brace for potentially higher heating costs in the years ahead. Supplies of gas are becoming increasingly uncertain and scarce in the United States and Canada, and will have to be replaced with liquefied gas imports, which cost substantially more.

“Homeowners are kind of stuck. In the last couple of years, you’ve seen a steady escalation in prices and there’s no sign that prices are going to drop significantly at all,” said Ron Gold, analyst with PIRA Energy Group.

Gas production from existing wells in the Gulf of Mexico and elsewhere in the United States and Canada is stagnant or on the decline, and wells drilled in recent years are supplying only enough gas to maintain existing production levels.

In addition, environmental opposition this year beat back attempts in Congress to open up areas for oil and gas drilling in Alaska, the Rocky Mountains and offshore.

As a result, liquefied gas imports, which historically have cost at least twice as much as domestic gas, are the only way to supply the country’s growing thirst for the clean-burning fuel. This new dependence on imports comes at a time when demand is being driven sharply higher by a generation of power plants coming online that are nearly all fueled by natural gas.

To feed the new power plants, gas supplies will have to increase 10 percent by 2010 — almost entirely through imports, analysts say. Currently, liquefied imports meet about 2 percent of U.S. needs, but as the import share of the market rises, gas prices inevitably will go higher.

Also adding to gas prices, new specialized port facilities must be built in the next decade at the cost of $50 billion to $100 billion to unload superfrozen imports of liquefied gas and transmit it to consumers through pipelines.

Those building projects are expensive and risky investments, and can be delayed or blocked at any point by opposition from environmentalists and residents who do not want the large and obtrusive facilities in their communities. Among other safety and environmental issues, the facilities are considered prime targets for terrorist attacks.

The delay of just one of the port facilities would drive up prices across the board by a dollar — or 10 percent to 20 percent, said Mike Zenger, analyst with Cambridge Energy Research Associates. Until the projects are built, homeowners and businesses face the risk of sharp increases in gas prices, with the biggest potential “dilemmas” occurring between now and 2008 — the earliest date the projects could be completed, he said.

“You’re talking about higher prices than people would like to see,” probably from now on, Mr. Gold said. Prices also could rise as a result of colder-than-normal winters or warmer-than-usual summers, which would cause power plants to draw down stores of gas to feed electrically powered air conditioners. A spike in gas prices this month was partly the result of a cold snap and snowstorms early in the month that departed from expectations for a mild winter.

Mr. Zenger said he is concerned that consumers seem to be unaware of the cost risks. Homeowners who haven’t found ways to cut heating costs will need to conserve to avoid punishingly high bills that could be as near as the next cold spell.

“When you replace your equipment, you want to spend extra money for the most efficient furnace. It’s more comfortable than turning down the thermostat,” Mr. Gold said. But he added that many consumers have done all the “basic stuff” such as sealing air leaks and might not have good alternatives when their fuel bills go up.

Industrial gas users and power companies have more options to switch fuels than homeowners. Many industrial users have dropped out of the market or been driven out by prices so high that they no longer can compete with foreign producers. Gas supplies outside North America are cheaper and more plentiful. Russia and Saudi Arabia have the largest known reserves of natural gas.

The most intensive users of gas, the chemical and fertilizer industries, have shut down about 20 percent of their plants since 2000, citing high natural gas prices, industry surveys show. An additional 25 percent of their plants have been closed temporarily, and industry officials say persistently high gas prices may ensure that they never open again.

“If high natural gas prices snuff out the economic recovery, we will know whom to blame,” said American Chemistry Council President Greg Lebedev, deploring inaction in Congress despite cries for help from floundering industries.

A bill pending in Congress would provide tax incentives to build a pipeline for bringing natural gas drilled in Alaska down to the lower 48 states, but that gas would not be available until after 2010, analysts say.

“High prices are not a reaction to short-term supply issues, but to an utter collapse in confidence that future supplies will be able to meet the nation’s needs,” Mr. Lebedev said. “The market is literally afraid of the future for natural gas.”

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