While a California congressman, backed by manufacturers across the country, is leading the charge to lift restrictions on offshore drilling for oil and natural gas, a report to the California Independent System Operator’s (CAISO) oversight board points out that natural gas prices in the West have been relatively unaffected by the recent hurricanes and have been significantly lower than the rest of the country.

CAISO’s report to its board indicated that despite the two big gas price spikes at Henry Hub following each major hurricane in late August and September ($12.70/MMBtu and $15.27/MMBtu, respectively), the West has fared relatively better, with the Pacific Gas and Electric citygate price peaking at $11.97/MMBtu after the second big hurricane (Rita) on Sept. 29.

“In September, California wholesale natural gas buyers enjoyed a discount of $1.50 to more than $4/MMBtu below national Henry Hub prices, compared to a typical discount in the range of 25-50 cents/MMBtu,” said the CAISO staff report, which concluded that futures prices for this winter have reached as high as $14/MMBtu.

CAISO noted that wholesale electricity costs have closely tracked the gyrations in the wholesale gas prices, with $9/MMBtu gas creating wholesale power prices in the range of $78 to $114/MWh. Thus, gas in the $12-$15/MMBtu range is bound to push wholesale electricity prices well above $120/MWh.

California’s state administration and Democratic-controlled state legislature are adamantly against any drilling off the state’s coast, while Republican House Resources Committee Chairman Richard Pombo (R-CA) is trying to get drilling reopened on the outer continental shelf off California and in the eastern Gulf of Mexico, using the upcoming budget reconciliation bill process as a vehicle.

Pombo has gotten strong support from the National Association of Manufacturers (NAM), whose president, John Engler called for a whole new energy production initiative, saying today’s historic high gas prices are “moving throughout the economy,” impacting business, and ultimately consumer prices. Engler used a Torrance, CA, small aerospace supplier, Ace Clearwater Enterprises as a poster child for the drilling push, pointing out the company’s monthly natural gas bill has jumped from $9,000 or $10,000/month last year to more than $14,000/month now (see Daily GPI, Oct. 21).

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