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Northeast Blizzard Flags Problems For Fuel Providers

THE American Northeast has enjoyed adequate supplies of home-heating fuels during the frosty weeks culminating in the blizzard of 1996. But consumers will pay more for fuel oil and natural gas.

The surge in demand for natural gas revealed bottlenecks in the network of interstate pipelines that supplies the region, leading analysts to call for construction of additional capacity. Some gas producers blamed the marketing firms that buy and resell gas for the failure of producers to profit fully from the weather-driven spike in prices. Marketing companies disputed the issue.

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The blanket of snow that shut down airports, schools, the federal government, and commodity markets early in the week failed to disrupt underground pipelines directly. Still, the snowfall interfered with petroleum-product deliveries in other ways. For example, home-heating oil was pumped as usual from Exxon Corporation refineries to a dozen product terminals from North Carolina northward, says Exxon spokesman Tom Torget. But with roads closed to delivery trucks, the oil could only be stockpiled at the terminals.

Traders said that heating-oil prices reached a three-year high as the blizzard clutched the region. But no actual shortages of the product were reported, even though oil companies have begun keeping minimal inventories out of concern that long-term price trends point downward.

Likewise, natural-gas inventories going into this winter were 18 percent below last year's in the Northeast. Although available gas has been equal to demand, the low-inventory situation helped drive gas prices to more than double their average during the third quarter.

Long-term contracts with gas producers mean most natural-gas customers will not see a price rise immediately, notes a Boston Gas Company spokesman. But more consumption will raise gas bills.

The heavy, sustained demand for gas did reveal some regional transmission bottlenecks, according to a new study by Cambridge Energy Research Associates and Arthur Andersen & Co. The report noted that the nation's demand for gas has grown 3 percent a year over the past decade. The rise in consumption means less spare capacity to handle surges in demand.

Raymond Plank, chairman of Houston-based Apache Corp., is disturbed that as gas prices soared on the futures market, producers have been left behind. For example, producers typically receive the futures price minus 6 cents per thousand cubic feet (mcf) for gas from the Gulf of Mexico. After prices spiked, the spread widened to 80 cents.

Consumers paid the higher price, Mr. Plank says. Over a three-day period the price of gas delivered by an interstate pipeline to New York City distribution companies rose from $3.31 to $6.75 per mcf. That "unprecedented" leap was caused by middleman speculators rather than underlying market factors, Plank says. Those speculators, he says, include a handful of the largest gas-marketing companies such as the Natural Gas Clearinghouse (NGC) and Enron Corp., both of Houston.

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Such charges are rejected by C.L. Watson, chairman of NGC's parent NGC Corp. Marketing companies add a mere 6 cents or less per mcf to the price of the gas they resell, he says. He also says there is "no factual basis whatsoever" for Plank's charge that marketeers manipulate markets for natural gas to increase price volatility.

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