Natural gas prices hit record high
Copyright 2000, Houston Chronicle
September 6, 2000
By Michael Davis, Houston Chronicle
Blistering heat in the United State's midsection sent natural gas prices to record highs Tuesday.
The price run-up reflected surging demand for gas from utilities producing power at peak levels to, among other things, run air conditioners.
Consumers in Houston and other parts of the country are likely to be paying more for natural gas and power year-round because summertime natural gas use is growing.
Gas prices now peak twice a year, during the coldest and hottest times, and utilities are ratcheting up fuel surcharges to reflect this trend.
The heat wave is putting added pressure on natural gas prices that were already rising due to fears that the nation will not have enough gas in storage this winter to meet demand.
Natural gas on the New York Mercantile Exchange traded Tuesday for the highest price in the 10-year history of the natural gas futures market.
The October contract closed at $4.95 per thousand cubic feet — the highest near-month contract ever. The December contract closed at $5.10 after reaching $5.11 — the most expensive natural gas contract ever seen on the Merc.Reliant Energy HL&P and Reliant Energy Entex, Houston's electric and gas utilities, have both increased their fuel-charge adjustments in the past two months to pass on higher natural gas costs.
HL&P bills are estimated to be about 12 percent higher than at this time last year because of fuel fees. Entex bills will run about 20 to 25 percent higher this winter, depending on how cold it gets.
HL&P experienced its all-time demand Tuesday: 15,454 megawatts. The previous record was last Thursday's 15,311 megawatts. On Labor Day, when the temperature hit 109, demand peaked at 13,864, said Leticia Lowe, spokeswoman for HL&P. Business demand is lower on holidays, she noted.
Weekly storage figures from the American Gas Association that will come out today will signal which way prices will move in the near term. The price rise Tuesday suggested that many traders are betting that gas prices will rise because less gas has been added to storage than was expected.
Typically, the industry likes to have about 3.1 trillion cubic feet in storage by Nov. 1. This year, the nation will be lucky if it reaches 2.6 trillion cubic feet, said Charlie Sanchez, energy markets manager for Gelber & Associates in Houston.
Concerns over winter storage levels will likely keep prices high regardless of short-term developments such as a heat wave.
"We could easily hit $5.25," he said. "This is a patient market, not like when we hit
$4 and there were 40- to 50-cent price swings in a day. People seem to be comfortable with gas in the $4.50 to $4.90 range now."
A normal winter could significantly increase gas bills. The mild winters the area has
experienced in the last three years have kept gas bills lower than usual.
"If we have any sort of winter, and demand is up substantially over last year, bills
could be 30 to 40 percent higher," said Wayne Stinnett, executive vice president for
support services at Reliant Energy Entex.
The heat wave has not had an immediate impact on Entex's demand since its gas is
not burned to produce power for air conditioning.
"You might not have to heat up your hot water as much, though," Stinnett joked.
Houston's weather is expected to cool a little later in the week, but as long as dry
conditions persist in Texas and elsewhere in the plains, temperatures will stay high,
said David Salmon, a meteorologist at Belton, Mo.-based Weather Derivatives. The
company tracks weather for the energy and agricultural industries.
"With the ground as dry as it is, as soon as that sun hits it, it starts heating up like
a parking lot," Salmon said. Last week, Houston was 46 percent hotter than normal
and Dallas 61 percent above normal, Salmon said.
The best solution to the heat wave, Salmon said, would be a "good, old-fashioned
hurricane."
"That's not what people in Houston want to hear, but it's a fact," he said.
Natural gas prices have not caused much of a stir in political circles, but with prices
breaking new ground almost every day, that's beginning to change.
Alaska Gov. Tony Knowles and Ohio Gov. Bob Taft are holding a meeting today in
Columbus, Ohio, on the "natural gas crisis." Politicians, regulators and executives of
energy companies will be discussing natural gas markets.