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Natural Gas Prices Soar


Natural gas prices soared to a new record high Monday as a blizzard socked the Midwest and forecasts predicted bitter cold for at least the next few days.

The soaring prices could almost immediately show up as unwelcome increases in consumers' winter heating bills, analysts said.

Natural gas futures rose as much as 13 percent, hitting a high of $9.65 per 1,000 cubic feet in regular trading on the New York Mercantile Exchange after surging as high as $9.86 in electronic trading overnight. January natural gas finished up 82.9 cents to $9.41 per 1,000 cubic feet.

Phil Flynn, vice president and senior energy analyst at Alaron Trading Corp. in Chicago, said a storm that was expected to dump up to a foot of snow on Chicago raised fears that utilities may not have enough natural gas stored up to get through a harsh winter. Natural gas heats 90 percent of the homes in Chicago, he said.

Cold weather in the Pacific Northwest has also contributed to the rise in prices, he said.

"It's more of a psychological situation than a real situation right now," Flynn said. "I would expect that the first big break in the weather will bring a break in the market."

Another factor in Monday's gains was federal regulators' approval Friday of plans to lift price caps on wholesale California electricity to ease that state's power crunch, Flynn said. The order means the $250 per megawatt hour limit for wholesale electricity can be exceeded if the sellers can justify the costs.

Natural gas, once thought of mainly as a source for winter heating, has become a year-round fuel used to generate the electricity that powers air conditioners and computers. But that rise in use has not been accompanied by an equal growth in capacity, meaning the resource is in short supply.

Weekly data released Wednesday by the American Gas Association showed a draw of 73 billion cubic feet from U.S. inventories of natural gas. The decline was not as severe as some traders had feared but still has been driving prices higher because supplies are considerably lower than year-ago levels.

Bill O'Grady, director of futures research at A.G. Edwards and Sons in St. Louis, said the timing of Monday's snowstorm--early December--has utilities concerned about shoring up their inventories.

"Inventories aren't the tightest on record, but they're tight," O'Grady said. "The market is essentially auctioning off the last molecules of supply to the highest bidder."

O'Grady and Flynn said consumers should be prepared for utilities to pass along the higher natural gas prices in their heating bills this winter.

In other trading at the New York Mercantile Exchange, January Crude Oil raised $1.06 to $29.50 per barrel, January unleaded gasoline was up 2.88 to 76.54 cents a gallon and heating oil for January delivery rose 3.85 cents a gallon.

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