Lofty US natural gas prices somewhat a mystery: FERC official

Lofty US natural gas prices somewhat a mystery: FERC official

Austin, Texas (Platts)--26Jul2005

Record-high crude oil prices and rising demand from the power-generation
sector fail to fully explain why US gas prices have remained above the
$7/MMBtu level for the better part of the past year, a top US Federal Energy
Regulatory Commission official said. Steve Harvey, deputy director of FERC's
Office of Oversight and Investigations, said it appears the buoyant gas market
is somewhat tied to the international price of oil, which has topped $60/bbl
in recent months. 

And part of the reason oil prices are so strong is that China is importing
record volumes in an already tight market, he told a meeting of the National
Assn of Regulatory Utility Commissioners in Austin, Texas. But extraordinary
crude prices--which can bolster domestic gas costs as fuel-switching becomes
less viable--should be offset to a large degree by gas storage inventories
that remain at near-record levels, Harvey said. He said that last spring in
the West, gas demand dropped because plentiful rain and snow created excess
hydro supplies to fuel power plants.

Gas storage facilities were so full then that "there was no place to put it,"
and yet gas prices in the region didn't retreat, he noted. Harvey also said
recent declines in domestic production have begun to level off--largely in a
reaction to resurgent prices--and that a modest increase in domestic gas
output was expected in 2005. But he said any production gains would likely
fail to keep up with rising demand, particularly among electricity generators.

In addition, this is "the first real summer" the country has experienced in
several years in terms of extreme heat, and that is creating a psychological,
if not fundamental, floor under the market, he said. Harvey said he does not
believe there is a grand conspiracy by a handful of non-commercial marketers,
or funds, to drive gas futures prices to artificially high levels as some
industry officials have suggested. However, he did say there have been
occasions when it appeared financial traders were driving physical prices
upward.

Harvey also said the creation of a liquefied natural gas spot market should
help stabilize the domestic gas market as tankers will have the ability to
regasify LNG on board and inject the gas directly into the US pipeline
system--assuming the price is right.

For more similar news, take a trial to Platts Inside FERC at
http://insideferc.platts.com.

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.