NATION Start of winter sees 'significant spike' in natural-gas prices

The jittery market has an analyst watching for a spike in natural gas prices.
CHICAGO TRIBUNE
The winter weather season -- the single biggest driver of natural gas prices -- has barely begun, but natural-gas prices already have stampeded ahead.
Although prices at the low end seem fairly predictable, the upper-end price seems to know no boundary.
"The low could be from just under $4 per million Btu [British thermal units] to very, very, very high, such as the $55 per million Btu that was recorded in California in the winter of 2000," said Bill O'Grady, vice president and director of futures research for A.G. Edwards & amp; Sons in St. Louis.
"What frightens me about this winter is that we've seen a pretty significant spike in prices, even though we still have fairly large quantities of gas in storage, and the weather hasn't been that remarkably cold," O'Grady said.
One example
For example, between Nov. 26 and last week, natural gas prices jumped 42 percent, from $4.92 per million Btu to $6.98, on the New York Mercantile Exchange.
"That was just over a snowstorm in the Northeast," O'Grady said. "What happens if we get 15 straight days of below-zero weather in Chicago? People are bidding up the price in anticipation that it will be cold for a long time, and the country will run out of gas."
Analysts, including Federal Reserve Chairman Alan Greenspan, say gas prices will continue to fluctuate until the United States develops new sources of supply, primarily through the import of liquefied natural gas, known as LNG.
LNG is natural gas that has been superchilled to the point that it turns into a liquid, allowing it be stored and transported in a form 600 times more dense than its normal gaseous state.
This year, the United States may import as much as 3 percent of its gas supplies in the form of LNG, which would be an all-time high, according to Cambridge Energy Research Associates.
"One of the things that has contributed to volatility in North America is the fact that there is very limited ability to respond to a weather change," said Tom Woods, senior consultant with Platts Research & amp; Consulting in Boulder, Colo.
"There is a market psychology of being concerned about supply. It doesn't matter if it's just a hiccup."
About the 2000 crisis
Woods noted that the gas crisis of 2000 was spurred by drought in California, which resulted in a decrease in hydroelectric power and an unexpected demand for large amounts of natural gas in the region.
The only way to ease market volatility is to create a perception of excess supply by encouraging companies to develop more supply, Woods said.
O'Grady believes generating the political will for that is not going to be easy, in part because of environmental and "not in my back yard" concerns.
"It will take three consecutive very cold winters, in which scores of elderly and homeless die, in order to get a public policy response," O'Grady said.
"Only then will the public decide that having offshore gas-drilling platforms on the East Coast may not be such a bad thing. Only then will they drop their objections to having an LNG terminal nearby."