Katrina puts heat on natural gas September 2, 2005Pressures that...

Katrina puts heat on natural gas

September 2, 2005

Pressures that had been building under natural gas prices all year got a steroid injection from Hurricane Katrina, assuring sharply higher home-heating bills for Chicago area consumers this winter.

Even before Katrina knocked out a major portion of U.S. natural gas production in the Gulf of Mexico, industry analysts predicted an increase of 18 to 25 percent in the typical residential bill for the October-to-April heating season.

"It's just too early to tell what the actual impact will be," said Peoples Energy spokeswoman Elizabeth Castro.

RISING HEAT

Here's how the average Peoples Gas customer bill for the heating season changed since the winter of 2000-2001:
Heating season Avg. bill Pct. Chg.
2000-01 $1,614

2001-02 $882 --45

2002-03 $1,278 +45

2003-04 $1,317 +3.1

2004-05 $1,514 +15.0


SOURCE: Peoples Energy
Natural gas distributors, such as Peoples and Nicor, pass through the market price of natural gas dollar-for-dollar to consumers and don't take a markup. The distribution companies estimate the unit price of gas each month with the Illinois Commerce Commission, which later reviews those prices to assure they were "just and reasonable."

Earlier this week, Nicor told the ICC it will pass through a cost of $1 per British thermal unit in September to consumers. That's up a numbing 61 percent from September 2004.

"All year long, we've seen prices creeping up, and we're trying to prepare our customers for even higher bills," said Nicor spokeswoman Annette Martinez.

Katrina's effect is magnified because of the extent of damage along the Gulf, which produces a fifth of U.S. natural gas. Katrina shut 88 percent of Gulf Coast natural gas output, according to the U.S. Minerals Management System.

"My best guess right now is that it will take about a month to get 70 percent to 80 percent of production back," said Nariman Behravesh at Global Insight in Massachusetts.

Traders responded to the scarcity by bidding up the price of natural gas on the New York Mercantile Exchange. On Thursday, gas for October delivery rose 28.5 cents, or 2.5 percent, to $11.757 per million British thermal units, the highest closing price ever. The market was up 20 percent through Thursday.

Natural gas supplies are particularly sensitive to lost production from the Gulf because the U.S. market is a "closed system." That means most of the fuel comes from North America, leaving the market with little ability to tap global supplies, as with crude oil.

Flood waters are preventing the restoration of much onshore electricity generation, which is needed to run gas-processing plants and compressor stations that keep the fuel flowing through pipelines, the U.S. Energy Department said.

The amount of natural gas in storage was further depleted by hot weather last week, because the resulting increase in air-conditioning use meant greater demand for electricity from gas-fired power plants. That cut the pace at which utilities could build supplies for the winter, when demand outpaces production and imports.

U.S. cooling demand last week ran 15 percent warmer than normal, according to population-weighted figures from the National Oceanic and Atmospheric Administration. Nationwide, electricity generation was 6.1 percent above a year earlier as of Aug. 27, the Edison Electric Institute said in a weekly report.

Bloomberg News, AP