WSJ: Years of Short-Term Strategy Create a Crunch in Natural Gas

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Cold Spell

Years of Short-Term Strategy Create a Crunch in Natural Gas

Consumers Face Soaring Bills In Winter as Utilities Fail To Hedge Against Risks
Asking the Public for Charity
By REBECCA SMITH and RUSSELL GOLD
Staff Reporters of THE WALL STREET JOURNAL
October 17, 2005; Page A1

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Utilities have shunned multiyear supply contracts, forcing them to buy much of the gas they sell at or near the current market price. Regulators have discouraged hedging against price rises. Gas producers have focused on wells they could drill quickly.

All those policies made sense in the 1990s, when prices were mostly falling and forecasters saw a long era of cheap natural gas ahead. The downside: When supplies tighten, consumers feel the hit quickly.

As temperatures drop, people who heat their homes with natural gas -- about 57% of the 110 million U.S. households, according to the Census Bureau -- are in for an unpleasant jolt. Natural-gas prices have risen above $13 per million British thermal units from around $7 a year ago. Most of that extra cost is getting reflected directly in gas bills. Owners of gas-heated homes should expect to spend an average of $1,096 this winter, up 48% from last winter's already-high prices, according to the federal Energy Information Administration. For many families, high bills could result in greater credit-card debt, delinquent payments, utility shutoffs and diminished Christmas spending. The situation has rattled nerves in Washington, leading to calls for more offshore drilling and pleas for homeowners to turn down their thermostats. "This is going to be a really difficult winter," says Stephen Ewing, head of gas operations at DTE Energy, an electric and gas utility in Detroit.

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While there is thought to be ample natural gas underneath North America, getting it out is harder nowadays. Companies have to drill more wells and use more expensive technology such as cracking open tight rock formations by pumping in pressurized liquids. Meanwhile, demand for the clean-burning fuel has steadily risen as companies try to meet clean-air regulations. Then came hurricanes Katrina and Rita. Katrina smashed plants in Louisiana and Mississippi that take gas from the Gulf of Mexico and move it onto pipeline networks in the U.S.

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Write to Rebecca Smith at [e-mail] and Russell Gold at [e-mail]

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http://online.wsj.com/article/SB112951312592770364.html (subscription)