Newspaper article THE JOURNAL RECORD

Natural Gas Prices Competitive with Oil / but, Some Households Not Reaping Benefits of Savings

Newspaper article THE JOURNAL RECORD

Natural Gas Prices Competitive with Oil / but, Some Households Not Reaping Benefits of Savings

Article excerpt

NEW YORK (AP) - Natural gas prices have plunged to stay competitive with oil, but some American households face rate increases for gas and millions of others are receiving only a portion of the savings being offered to industrial customers.

Prices that interstate pipelines and distribution companies pay for uncontrolled natural gas on the open market have dropped as low as $1.30 for each million British thermal units of energy. That is down 46 percent from a year ago, to a level last seen in the 1970s.

The big winners are companies with the capability of switching from natural gas to oil, giving them a major bargaining chip for winning concessions from suppliers.

With oil at about $15 a barrel, the residual fuel oil needed by an industrial user to produce 1 million Btus of energy costs about $2.40.

Boeing Co., for instance, recently switched to residual oil from natural gas at most boilers in two Seattle-area plants at a saving of $1.70 for each million Btus. That could add up to $1.5 millionover the next 12 months.

Boeing, which spent $28.6 million on natural gas last year, prefers gas to oil even if it means spending as much as 80 cents more for each 1 million Btus, spokesman Craig Martin said. But, he added, with the current wide price spread favoring oil, ""there isn't much reason for us to stay with natural gas.''

Consolidated Edison Co. of New York suspended natural gas purchases for only one day earlier this year before gas suppliers lowered prices. The utility, which has not had a rate increase in more than three years, says typical residential electric bills in the metropolitan New York area were 5.2 percent lower in April than a year ago because of lower fuel costs.

To keep six electric utilities from switching to oil, Southern California Gas Co. is charging the utilities less than the average price it pays for gas. The utilities consume 39 percent of the entire volume distributed by Southern California Gas.

At the same time Southern California Gas also has proposed raising bills to millions of residential customers by an average of 11.7 percent, saying that if the company's big customer switched to oil, residential rates could rise even higher.

In most areas, though, residential rates are falling.

""I don't think they're going to be raping residential customers,'' David Fleischer, an analyst who follows the natural gas industry for Prudential-Bache Securities Inc., said of gas distributors.

The natural gas industry, which has been beset by excess supplies for much of the 1980s, faces a major battle to maintain its share of the energy market following the collapse of oil prices from more than $30 a barrel late last year to about half that now. The industry already has seen U.S. demand for gas fall from 22 trillion cubic feet in 1972-73 to about 17 trillion.

""With oil at $15 per barrel, no segment of the gas industry will escape unscathed,'' analyst Marion Stewart said in a recent edition of his Stewart Energy Outlook.

The average price pipelines pay gas producers has been falling 5 cents to 10 cents a month, and the decline will continue, the American Gas Association predicts.

""We're in a literal dog fight for market with oil,'' said Nicholas Bush, president of the Natural Gas Supply Association, an organization of producers. ""Every indication is that this fight is going to be intense this summer.''

Oil accounts for about 42 percent of the nation's energy consumption, followed by natural gas, at 24 percent, with 47 million metered customers. …

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