Archive for Wednesday, June 18, 2003

Natural gas price hikes expected to continue

June 18, 2003

Chances are John Lenahan's customers won't have to don an extra coat when they're shopping at his Tonganoxie hardware store next winter.

Despite predictions that natural gas prices will be nearly twice that of last year, the 80-plus-year-old Lenahan plans to keep his thermostat turned up.

"I'm going to stay comfortable, even if I have to use my Social Security to do it," Lenahan said.

Peering upward at the lofty 15-foot tall ceilings in his century-old building, Lenahan said his gas and electricity bills run about $150 to $350 during the cold months.

He'd feel the pinch if the price went up, he said.

"It would just be less profit," Lenahan said. "You try to absorb the taxes and utilities when they rise, but business just doesn't rise with it."

Lenahan is like other Americans who are expected to be hit with increasing energy costs this winter.

Lori Webster, manager of communications for Kansas Gas Service, said natural gas prices have climbed.

"It's been on an average of around $6 per mcf," Webster said. "Last year it was probably around $2.50 or $3.50, so you can see it's almost doubled."

One mcf equals 1,000 cubic feet of natural gas.

The hike in natural gas prices mirrors low storage levels, Webster said.

She attributed the lower supply of natural gas to several factors, including weakened financial health of the energy industry, higher natural gas prices during the storage season, fewer drilling rigs compared to 2001 and increased use of natural gas to fuel electrical generating plants.

"And weather plays a big factor," Webster said. "If you have a mild winter or if you have a very cold winter, that causes price volatility."

Energy corporations attempt to put a hold on price volatility by hedging -- buying supplies when the prices are lower.
"Last year because of hedging, we were able to save our customers $80 million," Webster said.
Matt Yung-hans, propane manager at Leavenworth County Coop, said it's likely the cost of propane, which is manufactured using natural gas and crude oil, will also be higher this year.
"It follows both markets," Yunghans said. "There's a certain percentage of propane that is produced from natural gas. ... About 87 to 90 percent of the propane used in the United States is made from natural gas."
An increase would come on the heels of last year's hike.
"We went last year from 65 cents (per gallon), that was the cheapest, and it went all the way to $1.35," Yunghans said.
A shortage of propane on the East Coast last winter was partly to blame, he said.
"They started depleting our supplies in this area to make up for the shortage on the East Coast," Yunghans said. "So that caused a shortage here and that's what drove the price up."
The supply has not yet recovered.
"We're just slowly getting the inventories back up to where they normally are," he said.
The Leavenworth County Coop annual sales of propane run from 1.3 million to 1.6 million gallons. And, Yunghans said, the local demand seems to be increasing.
"With the housing growth going on in the county, we're definitely gaining more customers every year," he said.
Rick Reischman, director of operations for Kansas City Division of Southern Star Central Gas Pipeline, said utility companies are looking at other options of obtaining natural gas supplies.
"Right now the big push is the bold bed methane gas that everyone's drilling into," Reischman said. "
Lori Webster of Kansas Gas Service, declined to estimate what winter natural gas prices might be, and added:
"From what we know, this is a huge issue across the United States. The prices are likely to be higher -- how high, we don't know."

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