Natural gas may hit $20
Geoffrey Scotton
Calgary Herald
Thursday, October 06, 2005
'It's not a possibility. It's going to happen'
Natural gas prices could top $20 US this winter, analysts warned Wednesday -- as traders in New York sent the price of the critical heating, cooling, cooking and electrical generation fuel into record territory.
Natural gas contracts for December climbed as high as $14.75 US per million British thermal units (mmBTU) on the New York Mercantile Exchange (NYMEX) before closing down slightly from Tuesday's record of $14.22 US. Experts say the soaring prices -- which include a record $15.13 US Wednesday for January gas -- are just a taste of things to come.
"If we have a colder-than-normal winter this winter I think we are going to be in a real crisis," said Tristone Capital Corp. managing director of research, Chris Theal. "We're going to see NYMEX gas clearly through $20 US in that scenario."
Theal and other analysts warned a meeting of chartered financial analysts Wednesday morning that conditions are forming that could see U.S. gas prices skyrocket, a scenario that could take the price for Calgary consumers into the low-$20s per gigajoule (GJ) range.
That possibility would not only wallop Calgary consumers, it could cost the province hundreds of millions of dollars as its winter natural gas rebate program -- just expanded to include the month of October -- is open-ended at gas prices above $12 per GJ.
This month, the province will pay consumers $3.51 for every GJ of gas after consumer rates rocketed to $12.26 per GJ. The addition of October to the rebate program will cost the province $45 million and if gas prices stay between $9 and $12 per GJ the rebate tab for the heating season will hit $615 million.
"Gone are the days of cheap natural gas," said Theal.
Multiple market threats of inadequate natural gas storage, shut-in production from U.S. Gulf coast hurricanes, climbing consumption, flat or declining continental supply and cold winter weather have the potential to combine and push natural gas prices into the stratosphere, Theal and other say.
"It's the perfect storm," said Peter Linder, president of DeltaOne Capital Partners Corp., who told the Herald he's certain prices will top $20 US per mmBTU in any event, likely by December.
"It's not a 'possibility.' It's going to happen . . . probably before Jan. 1," said Linder, adding he predicts U.S. gas prices averaging $15 US per mmBTU in 2006.
He forecast Calgary consumers will pay two to 2.5 times for gas this winter what they paid last winter, when natural gas rates topped out at $7.31 per gigajoule, but that prices could go higher, even into the low-$20s. (A gigajoule, or GJ, and an mmBTU are roughly equivalent measures.)
"Enjoy the rebates," said Linder. "Accept the fact that we're in a new environment, adjust your spending accordingly and learn to live with it."
Gordon Singer, chairman and chief executive of QVGD Investors Inc., said winter temperatures are key, but the stage will be set within weeks by efforts to store three trillion cubic feet (tcf) of winter gas by Nov. 1, the end of storage season. Those efforts have been severely hampered by massive U.S. Gulf coast storms such as hurricanes Rita and Katrina, which have impaired 30 per cent of long-term production, shut in eight billion cubic feet of daily gas production -- and created more than 226 billion cubic feet of lost production.
"If we can't meet that three tcf and it's a cold year, all bets are off on prices," said Singer. Theal noted, "The market's struggling to get to three tcf by the beginning of the heating season."
gscotton@theherald.canwest.com
© The Calgary Herald 2005
Posted by Arthur Caldicott on 06 Oct 2005