Natural Gas Prices Rise as U.S.A. Production Falters

Alberta turning into gaspatch

by Chris Varcoe

Welcome to Canada's gas patch. After a long run, crude oil is slowly being nudged off center stage by natural gas as the premier commodity in Canada's energy sector.

For the first time since crude oil flowed at Leduc in 1947 — ushering in Canada's modern energy era — some analysts believe petroleum producers will collect more money from gas than crude this year.

"In the last two or three years — and for at least the next 18 to 24 months — the focus has clearly shifted", said Len Coad, vice-president of natural gas at the Canadian Energy Research Institute in Calgary.

"We are a gas basin, not an oil basin".

While oil is still a massive resource in Alberta — oil sands reserves total 11.9 billion barrels in place, compared with 42.8 trillion cubic feet of gas reserves — there's a legitimate debate about which resource is more important. For the third consecutive year, drilling for gas is outpacing oil.

Financially, natural gas prices in Western Canada are at their highest sustained level since the resource was deregulated in 1986.

On the New York Mercantile Exchange, natural gas prices are up 75 per cent this year, with product for June delivery jumping 6.8 per cent Wednesday to $4.073 U.S. per million Btu.

"We thought there would be a sea change in the price of natural gas and we're seeing it", said Bill Oliver, vice-president of marketing at Alberta Energy Co., the country's largest gas producer.

"The basin is more gas-prone than oil-prone, for sure — particularly if you look into the future", added J.C. Anderson, chief executive of Anderson Exploration, one of the country's leading gas producers.

Experts say the price is going up because of supply concerns in North America, and the increased ability of western Canadian companies to deliver into the United States.

Continental consumption is creeping up at a rate of two per cent annually, as more power plants use cleaner-burning gas instead of coal to create electricity.

The Canadian industry now ships record volumes of gas south, and in November the $4-billion Alliance pipeline will start transporting more product from northeast British Columbia to the Chicago area.

South of the border, U.S. gas production is faltering.

For consumers, fears of insufficient supply will mean higher home heating bills — possibly doubling this winter, according to one estimate.

Renewable Energy and Energy Efficiency Could Reduce Natural Gas Prices 37 Percent

Refocus/UK

WASHINGTON, DC, US, May 4, 2005 (Refocus Weekly) Expanded use of renewables and energy efficiency in the United States could reduce wholesale natural gas prices by 37% over the next 12 months, according to an updated study.

 The original report prepared in 2003 by the American Council for an Energy Efficient Economy (ACEEE) suggested that policy initiatives to increase investments in renewables and efficiency could reduce gas prices by 20% within five years, saving US$100 billion. The update, ‘Impacts of Energy Efficiency & Renewable Energy on Natural Gas Markets: Updated & Expanded Analysis,’ suggests the impact could be even higher.

“Compared with our 2003 study, this updated analysis reflects a further tightening in natural gas markets,” it explains. “As a result, the price response to changes in natural gas demand from energy efficiency and renewable energy investments is greater than in the previous analysis.”

The update extends the analysis period from five years to 15 years, although a significant price response is seen in the first five years with most of the benefits coming from energy efficiency. “However, as we move into the second five years, the importance of renewable energy increases, with renewables becoming the dominant incremental effect in the final years of the study.”

“This study demonstrates more clearly than ever the price impacts and other economic benefits impacts that would flow from a rigorous new policy commitment to energy efficiency and renewables,” it concludes. “No single policy strategy will achieve the results outlined here. Rather, a portfolio of policies is needed to achieve quick and sustained savings from energy efficiency and renewable energy sources.”

Among the policy strategies are Renewable Portfolio Standards and better policies to deploy distributed generation technologies, as well as energy efficiency performance targets for utilities, expanded federal funding for renewable energy deployment programs at DOE and EPA, and public awareness campaigns by state and national leaders, coordinated with increased funding for implementation programs.

The impact of combing renewables and efficiency was greatest and would decrease g as prices by $2.05 per Mcf (37%) in the first year, declining to a price reduction of $1.19 (20%) by 2010 as gas markets come into better balance.

Initially, energy efficiency investments achieve three-quarters of the price impacts of the combined investments with renewables but, as the installed base of renewables increases after five years, “the price impact from the renewable investments becomes more important, stabilizing long-term natural gas prices.”

“Energy efficiency and renewable energy are very complementary with respect to balancing natural gas markets, with energy efficiency being of critical near-term importance with renewable energy investments playing an important role in the longer-term, diversified resource portfolio,” it explains. “Energy efficiency and renewable energy do not by themselves constitute a sufficient solution to long-term natural gas supply concerns” but the analysis confirms that both efficiency and renewables “should clearly be a major part of the nation’s energy resource portfolio. If they are not, we will experience higher gas prices, market instability, and greater economic damage in gas-dependent sectors of the economy.”
 

Natural gas prices to soar soon

By Matt Olberding

July 5, 2003

Dwindling natural gas supplies are leading to higher wholesale prices, which will mean significantly higher monthly bills for Aquila customers this winter, the company said in a press release Wednesday.

The company has about 188,000 customers in Nebraska, including about 5,670 in Columbus.

According to the release, Aquila is paying $6 per thousand cubic feet of gas, compared with $3.50 a year ago. That's an increase of more than 70 percent. The shortage of natural gas is being blamed on an unusually cold winter last year and stagnant production.

Jan Davis, director of communications for Nebraska and Iowa, said there are too many factors involved to speculate on how much of an increase the average Nebraska customer can expect.

Customers on the company's StreamLINE payment plan, which allows them to pay the same amount each month based on past usage and projected gas prices, will see a steep increase next month. The average payment for StreamLINE customers in Nebraska will increase from $34.68 to $63.39 - an 83 percent jump.

"By making this adjustment in July we are helping our customers avoid very large account balances that would have to be reconciled on an annual basis," said Steve Pella, operating vice president for Aquila in Nebraska. Davis said the adjustment is being made because, "Everything we see on a national level says prices are going to be higher than a year ago."

Davis also said customers not currently on the StreamLINE plan might want to consider it to avoid the possibility of very high gas bills during the winter months. Slightly more than 1,700 Columbus customers are on the plan.

Company officials also are encouraging customers to take steps to weatherize their homes and businesses now to help keep winter gas bills lower.

Individuals aren't the only ones who will be affected by higher gas prices. In a speech last month, Federal Reserve Chairman Alan Greenspan called the natural gas shortage "a serious problem" and said it could hinder an economic recovery. Natural gas accounts for about 24 percent of the nation's total energy consumption, and manufacturing and industry are heavy users. Farmers could be hurt, too, because natural gas is used to manufacture fertilizer.

The rate increases do not have to be approved locally by the City Council, Davis said, because Aquila is allowed to pass on actual gas commodity cost increases to its customers.

The City Council and Aquila negotiate rates for operating costs for things such as transportation and delivery. Increases in those rates require the council's approval. That could change, though, with LB790, a bill passed in the last session of the Legislature. The bill allows either a city or an investor-owned utility to go to the Public Service Commission with rate increase requests.

Petroleum Industry Recommends New Government Push on Energy Conservation and Increased Natural Gas Imports

September 25, 2003

By Brad Foss

While still pressing the need for more drilling, the oil industry is now saying that conservation and greater energy efficiency hold the biggest immediate potential for preventing natural gas prices from skyrocketing.

A report by a committee of oil and gas executives who advise the Energy Department says natural gas prices could average between $5 and $7 per 1,000 cubic feet for years to come without significant advances in energy efficiency.

The spot price for natural gas Wednesday was $4.58 per 1,000 cubic feet, about 50 percent higher than a year ago.

(NOTE: The spot price is in addition to the cost of delivery, overhead costs of local gas retailers, taxes, etc. -- jt).

"There has been a fundamental shift in the natural gas supply-demand balance that has resulted in higher prices and volatility in recent years," the National Petroleum Council says in the report to be released Thursday by Energy Secretary Spencer Abraham.

"In the very near-term, reducing demand is the primary means to keep the market in balance because of the lead times required to bring new supply to market," according to an 89-page executive summary of the report obtained by the Associated Press.

To cut consumption, the council recommends updating building codes and equipment standards and implementing rules that would encourage power providers to use their most efficient plants.

Without significant advances in energy efficiency, the country's annual demand will rise above 30 trillion cubic feet by 2025, up from about 23 trillion cubic feet today, the council says. But it adds that even with advances in conservation, North America's natural gas resources will be insufficient to meet demand in the long term.

Production from traditional U.S. and Canadian basins has reached a plateau, the report says, noting that volume from North American natural gas fields is declining at an annual rate of more than 25 percent, requiring that many more wells to be drilled every year just to keep supplies steady.

To address supply problems, the council wants the Bush administration to relax onshore and offshore drilling restrictions and to encourage natural gas imports.

The report comes when the nation's supply of natural gas is tight and the government is bracing consumers to expect higher home heating costs this winter. Many of the issues raised in the report are being debated by Congress as it attempts to pass broad energy legislation.

Abraham asked the council in March 2002 to advise him on what industry and the government could do to guarantee "adequate and reliable supplies" of natural gas. While a similar study was prepared in 1999, Abraham said substantial changes had occurred in natural gas markets since then and further analysis was needed.

The issue gained added attention last spring when natural gas in storage dropped to its lowest level since the government began keeping records in 1976 and Federal Reserve Chairman Alan Greenspan warned that prolonged high prices would damage the economy, particularly the manufacturing sector.

More than 60 million Americans heat their homes with natural gas, up from about 48 million in 1987, and 90 percent of all new power plants use this fuel, which has been embraced because it burns cleaner than coal and can be found domestically in large quantities.

The report also argues that environmental laws requiring power companies to add expensive pollution controls when modernizing their plants only discourages investment in fuel-efficient technology.

Another solution, the report says, is improving access to a growing global market in natural gas through liquefied natural gas, or LNG. It recommends a quicker permitting process for new LNG terminals, where tankers from around the world can bring the icy-cold fuel to be regasified and pumped into pipelines. There are just four such facilities nationwide.

(NOTE: Increasing fuel imports may substantially increase our foreign trade deficit that currently exceeds $300 billion dollars annually. -- jt)

The council also wants moratoriums lifted on drilling off the Atlantic and Pacific coasts and more access to energy-rich lands in the Rocky Mountain region. It also endorses the proposal now before Congress, for a new natural gas pipeline from Alaska to the lower 48 states.

The report's authors included Burlington Resources Inc. CEO Bobby S. Shackouls, Energy Undersecretary Robert G. Card, and Exxon Mobil Corp. CEO Lee R. Raymond.

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NOTE: In a typical home, about 80% of the total air leakage area is unrelated to doors and windows.

Typical homes can be made safer, more comfortable, and more energy efficient if:

1. A mechanical ventilation system is used to provide adequate amounts of fresh filtered air, and

2. The air leaks, typically totaling hundreds of square inches, are sealed to prevent entry of drafts, pollen, particles, and insects.

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