Natural gas prices on the rise

Posted: Wednesday, August 31, 2005

Enstar customers will probably see their natural gas bills increase next year, according to company officials.

The Alaska gas utility uses a 36-month average of a Louisiana-based pricing index called the Henry Hub to figure prices for new gas contracts. The 36-month period ends Sept. 30, and rising Henry Hub gas prices will cause customers' bills to increase, said company spokesman Curtis Thayer.

"We anticipate the gas increase to be as high as they were last year," Thayer said.

The company's older gas contracts are indexed to the price of crude oil from the previous year, which also have increased in the last year, he said.

Enstar customers saw their natural gas prices increase 17 percent in 2005.

Enstar adjusts gas prices every year, and the amount of the increase will probably not be available until October, he said.

The price increase is passed on from the producers to the consumers through Enstar. This means Enstar does not receive increased profits from the price increase, Thayer said.

Henry Hub gas prices have increased from about $6 per thousand cubic feet last year to about $10 per thousand cubic feet this year.

In response to fears that Southcentral Alaska is running out of gas, the Regulatory Commission of Alaska approved a contract between Unocal Corp. and Enstar in the last couple years to tie the price of a natural gas contract to the Henry Hub.

Tying the prices to the Henry Hub helped set a value to new gas discoveries and was aimed at spurring development in the region, Thayer said.

"There is a real crisis where we are running out of gas in Cook Inlet," he said.

However, Enstar has supported building a spur or bullet pipeline to bring North Slope gas to Southcentral Alaska as another way of supplying gas to the region. The Alaska Natural Gas Development Authority has spearheaded this project.

Thayer said there has been a lot of discussion about tying the price of gas through a bullet or spur line to the Henry Hub, as well. He added that tying gas to the Hub is becoming "an industry standard."

Generally speaking, gas through a spur line would probably follow a similar pricing structure as gas through a larger pipeline, said Steven Porter, deputy commissioner for the Alaska Department of Revenue. Porter added that the prices could be tied to the Henry Hub or the Alberta Hub, for example. However, gas through a spur line may have a discount in the cost to transport it through a pipeline, he said.

Part of the rationale for building a spur or bullet line is to help support the Kenai Peninsula's existing industry, such as Agrium's North Kenai fertilizer plant and the ConocoPhillips and Marathon Oil Co. liquefied natural gas plant — as well as attract new industry to the area.

Agrium has been on a quest for new gas sources to continue operating its plant.

Tying prices for gas through a spur line to the Henry Hub could make it difficult to have an industrial base in the region, said Agrium spokeswoman Lisa Parker.

"This is the first time I've heard that gas coming off a spur line would be tied to Henry Hub prices," Parker said. "I'm very surprised that Enstar would say that a spur line would be tied to Henry Hub prices."

Parker said if this happened, she was not certain if it would be economical for Agrium to use gas through a spur line to operate. She pointed out that Henry Hub gas prices were more than $12 per thousand cubic feet early this week.

Agrium has historically paid less that $2 per thousand cubic feet for gas for its North Kenai plant. However, the company recently negotiated new gas supply contracts and the price it is paying is confidential.

"I don't know of any nitrogen facility where $12 gas would be economical," Parker said.

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