Riding a temporary price break in the Rockies, Oregon expects natural gas prices to remain stable for the year, according to reports Tuesday from the major gas industry players in the Northwest. They gave projections to the Oregon Pubic Utility Commission (PUC) at an afternoon workshop in Salem, OR.
Supplies are adequate in the near term, but longer term a Northwest Gas Association representative expressed some concerns beginning in 2010-11.
A PUC spokesperson called it “a ray of encouraging news,” coming on the heels of three consecutive years of higher natural gas rates in a state whose overall gas demand has been steadily declining annually since the 2000-2001 western wholesale energy market meltdown as many major industrial customers went out of business.
“A lot of good things have happened,” according to PUC gas analyst Ken Zimmerman. “Prices are in a lull due to a drop in demand and adequate supply. Overall for prices, it has been a pretty dull year with not a lot of volatility. Fortunately, dull is good news for customers after three consecutive years of rake hikes here in Oregon.”
By comparison, he said last year’s rates increased for the three major investor-owned gas utilities: Cascade Natural Gas (7.9%), Avista Utilities (7.1%) and Northwest Natural Gas (3.5%). Like last year, what the PUC staff called “wild cards” will include the hurricane season and any major interruptions of supplies from the Gulf of Mexico, and unforeseen interstate natural gas pipeline disruptions.
The three gas utilities operating in the state will file in late August with the PUC for its annual purchased gas adjustment (PGA), allowing it to adjust rates up or down to cover the actual costs of natural gas supplies for the preceding period. Any changes are effective Nov. 1.
Randy Friedman, Northwest Natural’s head of gas buying, noted disconnects between Alberta and Rockies prices and also between Nymex prices and the Rockies, and for the latter the amount of the spread is significantly greater than usual.
“I usually see Alberta [prices] as being representative of ultimately what’s available in the Rockies and British Columbia,” Friedman told the PUC’s three commissioners and staff. “Interesting to me is the disconnect between Alberta and the Rockies. That is why I never used to bother showing Rockies or British Columbia prices specifically because they tended to be very similar.
“However, this last six months, pent-up supplies in the Rockies that can’t get to market because they are waiting [for the next phase] of Rockies Express pipeline to be built and lack of liquidity have pushed down prices, so monthly spot prices right now generally are very low,” he said. “What we’re seeing right now is the difference between Nymex and Rockies prices of $3 to $4, so you take a Nymex price and subtract $3 to $4, and that is what the Rockies price is. Ten or 15 years ago the difference was 30 cents.”
However, Friedman noted that when considering longer-term Nymex prices out to mid-year 2008, when the next phase of Rockies Express should be operating, the difference “shrinks back down to about a buck.” While Rockies prices will go up, it should mean that with more supplies available going East, Nymex will go down, he said, and Oregon’s prices from Alberta should help offset the increase in Rockies prices, too.
“The net-net of the situation is I would expect prices overall to be slightly higher.” In the meantime, Northwest Natural, Oregon’s largest gas distribution utility, is going to enjoy the lower Rockies prices while they last.
“Right now, we’re certainly enjoying it; this morning it was $3.80[/MMBtu] on the spot market,” Friedman said.
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