- The Washington Times - Wednesday, August 2, 2006

NEW YORK (AP) — Natural gas prices rose yesterday as scorching temperatures in the Northeast and Midwest put pressure on the nation’s electricity grids.

Crude oil and gasoline prices also rose sharply after a government report showed that U.S. crude and gasoline inventories fell last week, and as a tropical storm gained strength in the Caribbean.

Air conditioners in the United States have been stretching the capacity of national electricity grids and driving up the price of natural gas.

When electricity use rises above normal levels, natural gas is the main fuel that utility companies use to run the extra turbines to meet power demand.

“You’ve got a national heat wave coast to coast, and natural gas is the fuel used for peaking electricity demand,” said Jim Owen, a spokesman for the Edison Electric Institute, a Washington-based trade group.

Natural gas rose 22.5 cents to settle at $7.799 per thousand cubic feet yesterday on the New York Mercantile Exchange, after soaring as high as $8.545.

That contract had surged 14 percent on Monday to settle at $8.211, the highest close since early February, and then fell about 8 percent on Tuesday. Contracts are still well below the record high, above $14, reached in October.

“The volatility has been spectacular,” said Fimat USA analyst John Kilduff. He added that while prices have been “a little overblown,” they could certainly rise further if today’s natural gas inventory report shows a drop, or if Tropical Storm Chris turns into a hurricane as expected and heads toward the Gulf Coast.

If natural gas prices remain high, the cost to the utility companies will probably trickle down to consumers’ electric bills, Mr. Owen said. How much depends on state regulations and whether the utility is locked into a long-term contract. Generally speaking “every state has a different mechanism for allowing these prices to go into the system,” he said.

Yesterday, the U.S. Department of Energy said crude oil inventories fell by 1.8 million barrels in the final week of July to 333.7 million barrels — still 4 percent above levels a year ago.

Gasoline inventories slipped by 100,000 barrels to 210.9 million barrels, and are nearly 1 percent above year-ago levels.

Distillate fuel inventories rose by 700,000 barrels to 132.6 million barrels.

What’s noteworthy is that refineries were operating at 90.8 percent last week, at a time of year when they should be operating at near capacity, said Peter Beutel, president of the New Canaan, Conn.-based consultant Cameron Hanover. So while inventories are fairly ample, Gulf Coast refining is vulnerable.

“Since hurricanes Katrina and Rita, American refineries have had trouble getting back to the levels of utilization before the storms,” he said. “What we can’t afford to happen is have a storm take any refinery out, even temporarily.

“We’re not reaching a stage right now that is likely to have us waiting in gasoline lines, but a couple well-placed hurricanes … could cause spot outages,” he added.

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