The price Southern California Gas pays for natural gas on the spot market will surge by 20% in January, the utility said Thursday, accelerating a trend that has seen gas supplies tighten and prices climb around the nation in recent months.
Southern California Gas said bids for natural gas from spot markets averaged $2.34 per million BTUs, an increase of 37 cents over December. As recently as September, spot prices nationally were in the $1.30 to $1.40 range.
The higher prices will show up on customers' monthly bills on a retroactive basis after the California Public Utilities Commission reviews the utility's cost of supplies.
The company said it hopes to take up to 585 million cubic feet per day of the spot gas in January. The balance of the utility's total daily demand, which recently has been 4 to 5 billion cubic feet, will come from its reserves and contracted supplies.
The gas company has been unable to acquire enough natural gas to meet demand in December, especially during the chilly weather of the past two weeks. The utility has been drawing on its underground reserves while cutting off supplies to some large customers capable of burning oil instead of gas.
However, despite continued cold weather this week, holiday work schedules and travel have driven down natural-gas demand to well below the record level of the previous week, a gas company spokesman said Thursday. He said, "We're in fine shape."
Southern California Gas has stressed that residential customers and others without the capability of switching to other fuels are in no danger of having their supplies of gas rationed. About half the gas sold by the gas company goes to electric utilities and other industrial customers that can use fuel oil instead of natural gas.
However, nobody will be spared the rising prices. In addition to the higher spot prices that will be passed on to customers later this year, the higher residential demand in cold weather will inflate monthly bills because rates rise with higher usage.
Until November, the utility had been buying most of its natural gas supplies on the spot market because prices were below those available on a contract basis. But cold weather and other factors, including a scheduled Jan. 1 change in pricing policies at gas wellheads, have now reversed the relationship between spot and contract prices.
Officials at El Paso Natural Gas, owners of the biggest pipeline serving California, said El Paso could have provided Southern California Gas with secure, contracted supplies of natural gas for $2.22 per million BTUs--or 12 cents less than the average January bids--if the utility had agreed to long-term contracts.
Lack of Buyers
The pipeline companies have been complaining for months that the emergence of a spot market in natural gas under deregulatory actions by the Federal Energy Regulatory Commission has forced them to relinquish long-term supplies of gas because of a lack of buyers. So when Southern California Gas turned to El Paso for additional gas as spot supplies tightened in November, the pipeline couldn't provide it.
Gary Simon, director of California affairs for El Paso, said the company has lined up a small additional source of natural gas for the Los Angeles-based utility to help "top off" its supplies this winter. But the prices under negotiation are even higher than the January spot bids, Simon said.
Despite the worsening climate, the gas company recently issued a statement declaring that it has "no intention of abandoning its monthly spot market bid program."