Rise of almost 40% stokes fears of big bills

By BRENT JANG Friday, December 5, 2003 - Page B1

Natural gas prices have skyrocketed nearly 40 per cent over the past two weeks, raising fears of soaring heating costs as frigid weather socks large parts of North America.

With cold blasts descending from the Arctic and elsewhere, benchmark gas prices on the New York Mercantile Exchange climbed 58 cents (U.S.) to $6.34 per million British thermal units yesterday, marking the eighth consecutive trading day of gains -- the longest rally since a nine-day streak in August, 2000.

Yesterday's 10-per-cent surge was also the biggest one-day increase in nine months, as weather forecasters peer into their crystal balls and see a weekend snowstorm brewing in parts of Central and Atlantic Canada, the U.S. Midwest and New England.

For producers, it's a grand time because robust gas prices fatten their bottom line.

But for homeowners and renters with gas furnaces, the red-hot fuel prices could translate into painful bill increases in the new year unless there's a prolonged warm spell to dampen demand.

There's a patchwork of billing systems across Canada involving regulated utilities and gas marketers, so prices won't rise in unison.

Instead, any natural gas price increases could emerge at varying times. Assuming prices stay lofty, some consumers may start seeing higher rates for natural gas as early as January, or as late as April. Distribution companies pass on the cost of the fuel through either monthly adjustments or seasonal reviews every three months or so, subject to provincial regulatory approvals.

Some local distributors, including Terasen Inc. in British Columbia and Enbridge Gas Distribution Inc. in Ontario, are already seeking slight decreases to their rates for January through March, so a rate hike wouldn't show up on bills until April, even if gas markets stay on fire.

In Alberta, however, Atco Ltd.'s Atco Gas reviews its rates monthly, so a January hike could be in the cards.

Benchmark Canadian natural gas prices have staged an impressive rally on par with U.S. markets. The supply crunch in Canada has been aggravated by breaks this week in two corroded Alberta pipelines run by TransCanada Corp., which also operates a main gas line from the West to Central Canada.

In the United States, gas storage levels have fallen faster than anticipated, creating worries about tightening reserves.

"We look forward and try to predict where the market is going to go," said Terasen spokesman Dean Pelkey. Vancouver-based Terasen has hedged some of its gas supplies by locking in future deliveries of gas at lower prices, but some distributors do virtually no hedging.

Mr. Pelkey said Terasen would seek to raise rates in April if prices turn out be to higher than expected between now and the end of March.

Enbridge Gas spokeswoman Lisa McCarney said her firm filed papers this week with the Ontario Energy Board to reduce rates slightly for the first three months of 2004 for customers in markets such as Toronto and Ottawa.

Ms. McCarney noted that as a distributor, Enbridge Gas doesn't profit from jumps in gas prices but makes money from delivery charges.

Natural gas producers and energy income trusts, however, are poised to reap windfall profits should the fuel price maintain its strength. Crude oil prices are also buoyant, rising 16 cents to $31.26 a barrel yesterday, as the Organization of Petroleum Exporting Countries committed to keeping a lid on its crude production.

On the Toronto Stock Exchange yesterday, the S&P/TSX energy trust index and the S&P/TSX energy index -- which includes oil and gas producers, integrated oil companies and oil field services firms -- hit record high closes of 118.02 points and 146.92 points, respectively.

Manitoba Hydro's natural gas division has already set gas rates for the three months ending Jan. 31, so it's too early to say what new rates will kick in on Feb. 1, said Winnipeg-based spokeswoman Marjorie Patterson.