Natural gas prices continue downward trend

Posted: Tuesday, July 03, 2001

ANCHORAGE (AP) _ U.S. natural gas prices continued to fall Monday, crashing through the critical $3 per million British thermal unit price for the first time in 15 months.

Analysts and executives have pegged the $3 price as the bottom price at which a huge Alaska natural gas export pipeline to the Lower 48 would be economic.

For the first time since April 2000, natural gas prices on Monday dipped below the threshold.

In March 2000, gas prices awakened from a 15-year slumber in the $2 range. During the previous two years, extreme low prices depressed production and exploration.

Low inventory and strong demand pushed prices to all-time highs last winter. They crested at $10.50 in December.

In Alaska, hope for a gas line has increased with rising prices. The North Slope holds at least 35 trillion cubic feet of natural gas, which may be the largest undeveloped reserves in North

America. Developing those reserves would mean a project on the scale of the oil pipeline construction in the 1970s.

Prices, however, have fallen since their peak in December. Monday, traders cut another 28 cents off the price.

The recent fall is due to cool weather in the Lower 48, which dampens electric demand for air conditioning, and huge volumes of gas flooding into storage in past weeks, according to the federal Energy Information Administration. For June, the amount of natural gas in storage was at its highest level in six years, according to the EIA.

``I don't think analysts anticipated the strong supply response,'' said Roger Marks, an oil and gas economist with the state Revenue Department.

Last year, Alaska's major oil companies came together in a $75 million joint study of a natural gas pipeline off the North Slope.

The work by Exxon Mobil, BP and Phillips continues and a spokesman for the Natural Gas Pipeline Sponsor group, Curtis Thayer, said the group is focused on costs and a route, not on price.

Each company is making its own price forecast, Thayer said. Once the study is complete, each company will evaluate the project independently.

``We're putting the car together and they can decide if they want to buy it or not,'' Thayer said.

For backers of other projects to develop the North Slope gas, falling prices may be good news. Low prices could kill an overland pipeline to the Lower 48 and revive a plan to liquefy the gas and ship it overseas to Asia or possibly Mexico.

Asian buyers purchase gas on long-term contracts less subject to the volatility that afflicts U.S. markets, said Jeff Lowenfels, president of Yukon Pacific Corp., a company pushing a liquefied gas project.

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