The Natural Gas Glut
Friday, October 30, 2009PAUL KANGAS: Consumers who heat their homes and power their businesses with natural gas should get a big break on their fuel bills this winter. The U.S. has a surplus of natural gas in storage and as Diane Eastabrook reports, even if the U.S. gets hit with a cold winter, prices for the fuel should remain fairly stable.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Chicago, customers flock to the Swedish bakery for its decadent pastries, colorful cookies and hearty breads. The bakery's profits depend on how much it sells and how much it pays to make those goodies. Right now, sugar and dairy prices are rising, but natural gas prices are falling. Owner Dennis Stanton says his natural gas bill is roughly 20 percent less than last year.
DENNIS STANTON, OWNER, SWEDISH BAKERY: It has helped in terms of, you know, one price that's decreased where other prices have increased, so it's been an offset. So, if the natural gas prices hadn't decreased, we'd be facing some more pressure on our prices, so, yes, it's helped a great deal.
EASTABROOK: So, why are the Swedish bakery's natural gas prices dropping so much? Quite simply, there is a glut of the fuel on the market now and experts point to three reasons: a sour economy, Mother Nature and technology. The first two reasons are tied to demand. Since the economy tanked last year, big natural gas users like manufacturers have cut consumption. Additionally, cooler temperatures last summer kept many consumers from cranking up air conditioners. The third reason is tied to supply. When natural gas prices soared earlier in the decade, energy companies invested in global positioning satellites and horizontal drilling technology so they could get fuel from once hard-to-reach places. The investment paid off. The U.S. currently has about 11 percent more natural gas in storage than it did a year ago. Veteran energy analyst Phil Flynn calls this a new era for energy.
PHIL FLYNN, SR. MARKET ANALYST, PFG BEST: We've really entered a situation where prices could be low for decades to come. I mean, we have found the mother lode of natural gas.
EASTABROOK: The futures market has been flummoxed by the natural gas glut. Prices crashed to a five-year low in September, but rebounded slightly on speculation energy companies will cut natural gas production to boost prices. Oppenheimer and Company energy analyst Fadel Gheit says so far, they haven't.
FADEL GHEIT, ENERGY ANALYST, OPPENHEIMER & CO: It is uneconomic for most companies to curtail production, no matter how low gas prices get, unless on a cash-on-cash basis, it becomes a loss. For example, if they can sell gas at a higher than what it costs them to produce it, they will continue to do so.
EASTABROOK: Baker Dennis Stanton is crossing his fingers, hoping fuel prices don't rise. In previous years, he's locked in his bakery's natural gas prices in an effort to avoid volatile fuel bills. But this year, he says he won't.
STANTON: Maybe it's a gamble at this point, but I think it's worthwhile taking a chance just to see where we're going to wind up.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
KANGAS: Now let's take a look at our stocks in the news tonight.
