Ask the Biz Brain

Natural gas output is down and futures prices are soaring in the aftermath of back-to-back hurricanes. Is the country on the verge of a crisis?
— Jittery homeowner
Homeowners, electric utilities and manufacturers will see a steep rise in the amount they pay for natural gas this winter, but analysts do not expect any shortages akin to what motorists experienced with gasoline this summer.

Industry officials say there is, and will be, plenty of natural gas for customers who want it and are willing to pay market prices.
Hurricanes Katrina and Rita have placed enormous strain on the production of natural gas in the Gulf of Mexico, which accounts for 19 percent of the nation’s total output. Natural gas futures prices are up more than 40 percent since Aug. 26, the Friday before Katrina made landfall.
“I hate to use the word crisis, but there is certainly potential for real supply tightness,” said oil broker Tom Bentz of BNP Paribas Commodity Futures in New York. “If we’re not able to build adequate storage going into winter, we’ll have extremely high prices.”
So what is adequate storage?
Analysts generally agree, before the winter heating season, the U.S. needs more than 3 trillion cubic feet of natural gas in underground storage in order to accommodate anticipated daily demand of about 61 billion cubic feet. At the moment, domestic storage is about 2.9 trillion cubic feet, and there are a few weeks left in the so-called injection period, when gas is put into storage by utilities and others.
“We have a reasonable chance to get to 3.2 trillion cubic feet,” said analyst Dan Lippe of Houston-based Petral Worldwide. “If we do, there will be a sigh of relief.”
But even if that level is not reached, there may not be as much to be fearful about as natural gas futures prices would suggest, Lippe said.
For starters, industrial users and homeowners across the country are expected to use less natural gas this winter because of the high prices.
Moreover, natural gas output is expected to rise in Canada and in the Rocky Mountain region as producers take advantage of the high-price environment.
— Brad Foss/ Associated Press
Source: The Star Ledger

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