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US: Natural gas prices set to skyrocket in the fall

SALEM — If your home is heated by natural gas, prepare to pay an extra 12 percent to 17 percent every time you crank up the thermostat come October.

The rates could set a record high in Central and Northeast Oregon, but all gas customers in the state should brace for gas-related sticker shock.

That's the word from executives from the Pacific Northwest's natural gas industry, who gave state utility regulators a several-year price outlook Thursday in preparation for rate proceedings for the upcoming winter.

Seattle-based Cascade Natural Gas, which supplies Central Oregon and was one of the participants in Thursday's round-table discussion, expects to seek a rate boost of roughly 15 cents per therm, said Kathie Barnard, the utility's director of regulatory affairs. A therm is a unit to measure quantities of heat.

"For many consumers, it will be the highest rates they will have paid," she said.

However, projections could change between now and the Aug. 15 deadline to submit rate changes to the Public Utility Commission (PUC), she said. New rates will become effective Oct. 1.

Cascade's almost 47,000 customers in Oregon experienced a rate increase of 1.9 percent in 2003. In addition to the Bend and Redmond areas, the utility serves the Northeast corner of the state.

The company has secured contracts for about half of the gas needed to serve customers in the coming year, Barnard said.

Thursday's forum cements what industry analysts and economists have been predicting about natural gas rates: The bargain-basement wholesale prices of the 1990s are gone, and probably for good.

"Our hope is that we can stabilize rates for consumers as much as we can," said PUC Chairman Lee Beyer. "We want to hold them down as much as we can, but they will go up."

Rising prices for natural gas have raised caution flags nationwide from industrial customers, residential consumers' groups and Federal Reserve Chairman Alan Greenspan.

Thursday's forecast wasn't all bleak, however.

While wholesale rates will jump this fall, it appears prices will flatten out or decline slightly for the rest of the decade.

That will be thanks to a slowdown of industrial demand and an expected infusion of gas from overseas and proposed wells in Alaska, said Dan Kirschner of Northwest Gas Association, a trade group that represents the industry in Idaho, Oregon and Washington.

Still, natural gas is expected to follow the lead of crude oil prices and remain in a higher price bracket than consumers have become accustomed to.

"The price in October should be the peak and then it will start trending downward," but only by about 1 to 2 cents per thermal unit a year, said Randy Friedman, an analyst with Northwest Natural, the state's biggest gas company.

The Cascade Natural Gas rate increase last fall was based on an average residential usage of 63 therms a month, but the figure is higher in the winter, said Bob Valdez, a PUC spokesman.

Rates netted by each utility vary because of the way they buy gas.

Companies like Cascade rely on long-term contracts that lock in prices for several years, but others look to the short-term market, Valdez said.

Companies make money by charging for the transportation of the gas through their facilities, he said.

The Northwest Gas Association projects that the region's demand for natural gas will climb by 3 percent to 5 percent in the next five years.

That demand is significantly less than was expected in 2002, when several gas-fired electricity generators were on the drawing board.

Higher prices have idled many of those plans, and also forced some industrial plants to shut, Kirschner said.

In addition, residential demand in the region has declined since 2000 because of warmer weather, he said.

Northwest customers receive gas from two major production basins — western Canada and the Rocky Mountains.

Production capacity in those regions is expected to climb slightly between 2004 and 2010, he said.

However, the yield per well is dropping, so it takes more rigs to generate that supply, he said.

As a result, the industry is looking to imports of "liquefied natural gas" and new wells in Alaska, he said.

Lowery Brown, an analyst for the Citizens' Utility Board of Oregon, a consumer advocacy group, worries that the industry is focusing too much on new supply to stabilize prices.

She wants to hear more from utilities about conservation efforts and how they will mitigate the impact of soaring rates on people with fixed incomes.

"There are some safety nets out there for bill assistance and weatherization assistance, but as it is they don't cover the need," she said.

"If available funds don't increase, there will continue to be the problem of people not paying their bills."

There may be a silver lining to higher rates, she said. It becomes more cost-effective to install better insulation or windows, which will lower gas usage and bills, she said.

In the 1990s, the region enjoyed comparatively low gas prices because supply exceeded demand and because nearby wells didn't tie directly to the thirsty northeastern United States. That's no longer the case, Kirschner said.

James Sinks can be reached at 503-566-2839 or at jamess@cyberis.net.

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