Natural Gas Producers Getting Higher Prices / Best since Mid-1986

By Robinson, Robin | THE JOURNAL RECORD, January 7, 1987 | Go to article overview

Natural Gas Producers Getting Higher Prices / Best since Mid-1986


Robinson, Robin, THE JOURNAL RECORD


Natural gas producers in Oklahoma are receiving higher prices for their commodity with some seeing their highest prices since mid-1986.

The producers are benefiting from tightened supplies on the spot market.

As spot market natural gas prices climbed to their highest levels in two years, reaching $2.10 per million British thermal units this week, wellhead prices received by producers climbed to the $1.45 per thousand cubic feet to $1.65 range, said Lew O. Ward, president of Enid-based Ward Petroleum Co. One million British thermal units are roughly equivalent to one thousand cubic feet of natural gas.

Another natural gas producer, Bob Alexander, president of Oklahoma City-based Alexander Energy Corp., said his company has received wellhead prices ranging from $1.55 per thousand cubic feet to $1.80.

Alexander had received an average price of $2.03 per thousand cubic feet of natural gas in June 1986, but by September of that year the average had fallen to $1.37, he said.

The latest prices are "probably the best since mid-1986," Alexander said.

Producers had been looking at $1.20 per thousand cubic feet in September 1987, Ward said. The latest spot prices "make a big difference," Ward said.

The spot market highs on Monday were up from $1.70 a month ago and $1.50 early last year.

Alexander's firm expects natural gas prices to top $2 by the end of this month, when bidding for February delivery of Alexander Energy's natural gas is completed.

Here is a breakdown of natural gas prices in Oklahoma surveyed by Natural Gas Clearinghouse Inc. of Houston as of Jan. 1 compared to Dec. 1.

- ANR Pipeline Co., Custer County, Okla., $1.85 per million British thermal units, up from $1.55 Dec. 1.

- Northern Natural, Beaver County, Okla., $1.90, up from $1.65.

- Natural Gas Pipeline Co., Oklahoma, $2.05, up from $1.75.

- Oklahoma Natural Gas, Oklahoma, $1.80, up from $1.55.

- Panhandle Eastern, Beaver County, Okla., $1.90, up from $1.65.

With crude oil prices in the $18-per-barrel range, natural gas prices ought to be in the vicinity of $3 to be price-competitive, Ward said.

Natural gas prices may find a ceiling of $2.25 per thousand cubic feet, Alexander said, because natural gas would face competition from fuel oil above that price.

If natural gas prices rise above fuel oil prices, the industrial users capable of switching betweeen fuel oil and natural gas would switch to the oil, increase demand for crude oil and drive up imports, Alexander said.

Because transportation costs to northern markets often add 70 cents per million British thermal units or more, gas is more costly in some regions than fuel oil, which has fallen below $2.40.

Executives at several large users of natural gas, including steel and paper mills and auto manufacturing plants, said natural gas supplies appeared to be plentiful but that they had adjusted to the higher prices where possible by switching to No. 6 fuel oil.

"We've gotten to the point where we can burn fuel oil more cheaply," Carl J. Schleck, who buys energy for more than 100 plants operated by the James River Corp. of Richmond, a major producer of paper products, told the New York Times News Service.

"Our only choice is to switch our facilities wherever we can to fuel oil, and we started that this week," said Richard J. Fillman, vice president of corporate energy affairs at the Bethlehem Steel Corp. Natural gas costs represent more than 20 percent of the steelmaker's annual operating costs, he said. "We're having to pay higher prices and that hurts us on the bottom line," Fillman added.

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