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Msg  302 of 314  at  3/15/2023 1:48:07 PM  by


Why Gas Bills Are Going Crazy—With No End in Sight; Supply challenges contributed to

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Why Gas Bills Are Going Crazy—With No End in Sight; Supply challenges contributed to the most volatile year on record for natural gas


Homeowners and businesses across the country have seen their gas bills go wild—and the turbulence isn't going to calm down anytime soon.

Last year was the most volatile on record for natural gas, boosting the cost to heat homes, generate electricity and manufacture economic building blocks such as fertilizer and steel. Prices in 2022 whipsawed from unseasonable lows to shale-era highs and back again. Benchmark gas futures, which determine what millions of Americans pay for heat and electricity, swung by at least 7% on 44 days last year, the most since at least the early 1990s, when gas markets were deregulated and the modern trading era began.

The wild ride has continued this year, with 12 daily moves of 7% or greater. On many days, traders find it difficult to determine why prices move so sharply.

Analysts, traders and big gas buyers expect this kind of instability to become the norm. Coal-fired power plants have been retired en masse without wind and solar farms ready to replace their output, pressuring utilities to pay up for gas. Infrastructure to export more gas is being built, but pipeline projects to move more gas within the country have been slowing.

The Kremlin's invasion of Ukraine last year sent global markets haywire, sparking a scramble by European buyers to replace Russian supplies and tethering U.S. prices to international events even more. On Wall Street, trading programs that follow the price trends have come to dominate commodities exchanges, amplifying moves up and down . The algorithms can add momentum to shifts in the market by flipping large chunks of investors' positions on any given day.

The severe swings diverge across regions. This winter, gas prices in California surged to more than six times the national benchmark price at the time. A fire at an important export facility in Texas kept traders guessing about supply and demand. Unusually warm weather cut heating demand in parts of the country this winter and knocked prices in February below a threshold rarely breached over the past 20 years.

Plummeting gas prices in February pulled down U.S. energy costs from January and helped cool overall inflation , the Labor Department said Tuesday. Now, drillers are throttling back production to buoy prices, though analysts warn that could set the stage for spikes if summer is particularly hot.

Policy decisions from the White House to state capitols have exacerbated the situation. States have blocked and discouraged new pipeline construction and hastened the closure of coal-fired power plants, while federal officials have said they would boost gas exports to support U.S. allies , particularly in Europe.

This wasn't the promise of the shale boom of the 2000s, which was supposed to provide inexpensive, reliable supply. The seesawing market is "not where most folks in the industry expected us to be," said Anna Sommer, who analyzes utilities' energy plans at consulting firm Energy Futures Group.

While warm temperatures in January from St. Louis to New York sent benchmark prices on their steepest monthly plunge since 2001, some Americans paid more than ever for heat and electricity. Many others can expect future bills from utilities trying to recoup billions spent on gas.

In Colorado, Emily Hodge was shocked by a nearly $918 bill for heating and electricity in December, almost double from a year earlier. A cold snap before Christmas pushed prices at a trading hub in Wyoming to $53 per million British thermal units, according S&P Global Market Intelligence, roughly nine times higher than the spot price at a Louisiana pipeline junction where national rates are set.

In January, Ms. Hodge's bill ticked even higher—to about $959.

"I actually don't know how people are surviving," said Ms. Hodge, who lives in a three-bedroom house with her family of four in New Castle, about 45 miles northwest of Aspen. "It's officially our biggest bill now—more than our mortgage, more than our insurance."

Like many others across the country, Ms. Hodge has occasionally worn a coat indoors to stay warm this winter without cranking up her thermostat. The 36-year-old photographer said she also raised her price for shooting family portraits this summer to $1,200 a session, up from $750. The increase has scared away some clients.

Still, Ms. Hodge added, "we have to do something."

In California, where supplies dwindled after a pipeline exploded in Arizona in 2021, power companies and other businesses bid up prices for January gas deliveries for some big buyers to about $54 per million BTUs, compared with a rise to about $7 in the national benchmark price.

The resulting bills had Pabco Building Products weighing two options: take losses or raise prices.

Pabco uses gas to make drywall from gypsum mined in the mountains outside Las Vegas. Phil Bonnell, who runs the business, said wallboard prices would have to double to cover January's gas bills. The company is changing how it buys fuel to avoid a repeat.

"We're convinced this is likely to be the rule rather than the exception," he said.

The tremors come a decade after innovations in hydraulic fracturing and horizontal drilling turned West Texas, Appalachia and other shale regions into powerhouses that redrew the global energy map .

Shale gas was pitched as a bridge between dirtier coal-fired power and a clean-energy future. A growing fleet of gas-fired plants added competition to electricity markets by allowing utilities to burn the cheapest fossil fuel at any given time.

Shale drillers flooded the market, making gas the low-cost alternative. Coal-based power generation dropped by about 55% between 2007 and 2021, according to the Energy Information Administration, and it trended even lower in the first 11 months of last year. Gas filled the equivalent of about 61% of that lost wattage, far outpacing gains in renewable energy.

The shift forced dozens of coal-plant retirements in Pennsylvania, Ohio and elsewhere that left many locations' hulking boilers and towering smokestacks to demolition crews. About 575 pounds of explosives toppled an old plant in Swedesboro, N.J., in December to make way for a battery project, while a Lakeland, Fla., facility has been gradually leveled in recent months in favor of more gas-fired generation.

With pressure growing to cut emissions, such shutdowns could increasingly be driven by policy decisions and corporate sustainability plans rather than economics of coal-to-gas switching, said Matthew Hoza, head of U.S. power markets at data-analytics firm FactSet.

Without coal plants to fire up, many utilities have no choice but to buy gas to ensure the lights stay on. "In the past you'd have coal generation come on to cool off natural-gas pricing," Mr. Hoza said. "Right now, we've lost that lever to pull because coal generation has tapered."

Bread, bottles, aluminum, cement, PVC pipe, toothbrushes and pet food have all become more expensive to make, manufacturers say.

Some firms are trying to escape the volatility by conserving energy. At UniFirst Corp., which rents work apparel to companies, Chief Executive Steven Sintros said about 90 of its industrial laundries have begun switching to detergent that allows giant washing machines that can hold 450 pounds of clothes to run at lower temperatures.

When a winter storm froze Texas energy infrastructure in February 2021 , lifting benchmark on-the-spot prices to an all-time high, the gas bill at Graphic Packaging Holding Co.'s mills shot to millions of dollars a day. Going without gas isn't an option for the maker of cereal boxes and paper cups, said CEO Michael Doss. Besides being crucial to making paperboard, Graphic's mills contain miles of pipe that cannot be allowed to freeze.

Then, last summer, as demand surged for air conditioning and exports, the flow of gas to Graphic slowed to ensure buyers with supply contracts got their fill, Mr. Doss said. Such buyers, including facilities on the Gulf Coast that ship out liquefied-natural gas, or LNG, had contracts guaranteeing supply. Graphic never had to worry about getting enough gas before and didn't need contracts at the time.

Now, the 24,000-person company is running second pipelines to its mills and paying premiums for firm-commitment supply deals to ensure it gets enough gas.

"It's hard even for a company our size to have the expertise to navigate this deregulated market," Mr. Doss said.

Utilities are seeking permission to claw back more 2022 gas costs from customers.

In Colorado, Xcel Energy Inc. has asked state regulators to allow it to bump up customers' rates to recover about $123 million in costs it attributes to higher-than-expected spending on gas throughout the year, according to regulatory filings.

Florida Power & Light plans to recover $2.1 billion starting in April, though it hopes lower gas prices this year will offset some of those rate hikes, a spokesman said. Southern Co., which runs power companies in Georgia, Alabama and Mississippi, said it incurred $2.7 billion in unexpected fuel costs last year.

Tom Fanning, chief executive of Southern Co., described the Ukraine war's impact on gas markets as "overblown," and called for loosening restrictions on drilling projects and limiting gas-fired power plants' emissions through investments in carbon capture and hydrogen-based technology.

"We need to unleash the capability of energy infrastructure in America to produce as much as we can," he said.

Drillers aren't so sure. As futures prices tumbled in February to $2 per million BTUs, executives said they would choke back output by dropping rigs in regions such as the Haynesville shale beneath East Texas and northern Louisiana. That could tighten supplies next year, when new LNG export terminals are slated to come online.

Citigroup Inc. analysts told clients to expect futures contracts to dip as low as about $1 and as high as roughly $6 by the end of 2024. They warned that a hot summer or cold winter could add more volatility, particularly in regions facing constraints such as the western U.S.

Costs have climbed out West, where coal plants have shut down, drought diminished hydropower output and gas supplies shrunk after the 2021 pipeline explosion. A December cold spell in California pushed households to turn up the heat and overcast skies cut solar generation. The bad weather arrived during the week when wholesale gas buyers place orders for the next month. Utilities with few alternatives to generate power bid up gas, setting the ultimate cost many times higher than in the rest of the country.

Executives at Pabco Building Products were astonished to learn that the January gas for its manufacturing facilities in Washington, Nevada and California would range from $49 to $54 per million BTUs, compared with about $4 the year before.

Closely held Pabco opted to take big losses instead of raising prices because the housing slowdown had already walloped its customers, said Mr. Bonnell.

Rather than buy a month's worth of gas in advance, as it had done for more than 20 years, Pabco started in February to buy fuel on the spot market. That means it won't get locked in to high prices for entire months, but is now exposed to day-to-day market gyrations.

"We've set some cost parameters for gas and if it exceeds them, we won't manufacture that day," Mr. Bonnell said. He said he worries shutdowns will leave Pabco vulnerable to poaching by other employers that can offer steady hours. Pabco plans to lock in some prices by buying futures contracts to help smooth costs during summer and winter months when gas demand is highest.

The move to the spot market has so far paid off. Prices in southern California dropped to single digits in February, down from the mid-teens at the end of January. Still, Pabco wasn't finished paying for the surge.

Mr. Bonnell said the firm received notice of an add-on charge from the utility that serves its paper mill in Los Angeles County. The price for December was $400,000—16 times the typical monthly amount.

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