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Natural gas prices ride along with heat wave

Steve Tripoli Aug 2, 2006

KAI RYSSDAL: Let’s put those weather maps in motion, shall we. It is hot, continued hot in most of the eastern half of the country, so people are cranking the air conditioners. And they are playing right into the hands of the natural gas market. The AC runs off electricity, but the power plants that make most of that electricity are in turn powered by natural gas. The hot weather’s going to end in a couple of days. The forecast for natural gas prices is less certain. Marketplace’s Steve Tripoli has the story.

STEVE TRIPOLI: Energy analyst Peter Beutel says there’s a reason why extreme weather really socks it to natural gas prices.

PETER BEUTEL: Whenever you get extraordinarily hot or extraordinarily cold weather, electric utilities need to run extra units and those units are predominantly fired by natural gas.

The price for natural gas jumped 14 percent on Monday alone. It’s up more than 30 percent in the last week. Blame it on the West Coast heat wave that gave way to an East Coast scorcher.

That’s more price volatility than oil markets ever see. Oppenheimer analyst Fadel Gheit says there’s a reason for that too.

FADEL GHEIT: It is really a market that is isolated. The US or the North American natural gas market is kind of cut off from the rest of the world.

Most gas reserves are in Eurasia and the Middle East. Gheit says a lack of facilities here for unloading gas tankers makes matters worse.

Peter Beutel heads Cameron Hanover in Connecticut. He says the economic impact of all energy prices is getting harder to ignore.

BEUTEL: We’re in a situation now where we’re spending billions and billions of dollars more than we were just two and three and four years ago. Eventually, that’s going to have to catch up with this economy.

The extra hit has just begun to show in the consumer spending pullback. Beutel estimates that energy has cost consumers an extra $400 billion over the past 18 months.

With most homes heated by gas, what happens this winter is anyone’s guess. Prices may not stay up if the winter is mild and hurricane season is slow.

So watch the weatherman. He’s more than a climate forecaster this year.

I’m Steve Tripoli for Marketplace.

RYSSDAL: Oil, just in case you’re curious? Up 90 cents today to $75.81 a barrel in New York. Tropical storm Chris was one culprit. It’s expected to turn into a hurricane and head toward the Gulf Coast. And a government report showed oil and gas inventories in the US were lower than expected last week.

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