SPOT GAS PRICES SURGE FOR JANUARY

Jan. 8, 1990
U.S. deepfreeze sparks rise in gas demand that sends median spot price to an average $2.34/MMBTU, highest monthly average since July 1985. Product prices also jump. Refiners bringing plants back in operation after shutdowns. Average U.S. natural gas spot prices for January shot to their highest level since July 1985 because of heavy demand brought on by record cold weather throughout much of the U.S. late last month. Rising oil product prices brought demands for investigations as temperatures

U.S. deepfreeze sparks rise in gas demand that sends median spot price to an average $2.34/MMBTU, highest monthly average since July 1985. Product prices also jump. Refiners bringing plants back in operation after shutdowns.

Average U.S. natural gas spot prices for January shot to their highest level since July 1985 because of heavy demand brought on by record cold weather throughout much of the U.S. late last month.

Rising oil product prices brought demands for investigations as temperatures fell below 0 F. in some areas.

Besides weather related demand increases, supply was curtailed because of severe freeze damage to production and processing equipment in several major refineries and producing fields (OGJ, Jan. 1, p. 28).

Another contributing factor was a Dec. 24 explosion and fire at Exxon Co. U.S.A.'s 455,000 b/d Baton Rouge refinery that shut down product deliveries from the second largest U.S. refinery.

The hike in prices is not expected to last. Production facilities have been serviced or replaced and refineries and petrochemical plants are slowly, steadily coming back on stream.

Less expensive product in Europe, where the weather has not been as cold, was being rerouted to U.S. ports.

GAS PRICES RISE

The U.S. median spot gas price for January delivery averaged $2.34/MMBTU, the highest monthly average since the $2.46/MMBTU paid for July 1985 deliveries, Natural Gas Clearinghouse, Houston, reported.

The median spot price averaged $1.69/MMBTU in December 1989 and $1.97/MMBTU in January 1989.

Some gas briefly sold for more than $4/Mcf the weekend of Dec. 23, said two gas pipeline spokesmen who kept track of supplies moving on their systems,

The highest average spot price for gas since Natural Gas Clearinghouse has been surveying prices was $2.81/MMBTU for March 1985 deliveries.

The clearinghouse surveys the spot price of U.S. gas at 17 receipt points and zones.

In the survey, the highest price for January deliveries was $2.65/MMBTU at El Paso Natural Gas Co.'s Pecos/Waha, Tex., receipt point. The lowest January price was $2/MMBTU at American Natural Resources Co.'s Custer County, Okla., receipt point.

Prices for February deliveries are likely to fall unless another cold snap occurs in late January when February nominations are made, sources said.

GAS FLOWS RESTORED

Gas pipelines reported that deliveries have been restored to normal volumes. Most pipelines had stopped interruptible transportation services, but a few also had to reduce firm transportation services.

For example, Panhandle Eastern Corp., which halted interruptible transportation on its three pipelines during the December freeze, also had to reduce firm transportation deliveries on the Texas Eastern Gas Pipeline Co. and Trunkline Gas Co. systems.

Texas Eastern and Trunkline receive much of their gas from Gulf Coast and Gulf of Mexico fields. Extremely low temperatures and stiff gales combined Dec. 23-24 to freeze facilities and prevent service.

Ice floes damaged some offshore facilities when temperatures began rising.

Texas Eastern, which had cut contract sales by about 17% Dec. 23 and about 10% Dec. 25, and Trunkline have restored to normal volume all gas sales and deliveries.

Panhandle Eastern Pipe Line Co. told its customers the 350 MMcfd of pipeline capacity that had been allotted in December for interruptible transportation service would temporarily not be offered beginning Jan. 1 due to increased demand for firm service.

Local distribution companies were strained by the cold, and some urged conservation. South Jersey Gas Co., Folsom, N.J., achieved a record peak day sendout of 272.163 MMcf Dec. 22, up from the previous record 252.778 MMcf Jan. 21, 1985.

South Jersey had a record 3 day sendout of 792.648 MMcf Dec. 22-24. Previous 3 day record was 715.675 MMcf last Dec. 16-18.

Philadelphia Gas Works, notified by Texas Eastern and Transco of 28% curtailment, called on all residential, commercial, and industrial customers Dec. 27 to reduce gas use. It notified interruptible customers the previous week to switch to other fuels.

REFINERY START-UPS

A survey by the American Petroleum Institute found that U.S. refinery production fell 800,000 b/d or 11% from the previous week due to freeze damage. Most of the damaged units were in the Gulf Coast region.

Seven of the 10 biggest U.S. refineries in terms of crude charge capacity are along the Gulf Coast. Most either had operations shut down or curtailed by freeze damage.

Of the three in the top 10 not in the Gulf Coast region, Shell's 286,000 b/d Wood River, Ill., refinery also was curtailed by freeze damage. Shell last week said all conversion units had been brought back on line.

Progress was slower at Shell's 220,000 b/d Norco, La., and 225,000 b/d Deer Park, Tex., refineries. A spokesman said Jan. 3 that restart was mostly on schedule but declined to estimate when it would be complete.

Other refiners had made more progress. Lyondell Petrochemical Co.'s 270,000 b/d Houston refinery and Exxon's 493,000 b/d Baytown, Tex., refinery were back to capacity following curtailments due to freeze damage.

OTHER PLANTS AFFECTED

A Department of Energy official said Marathon Petroleum Co.'s 255,000 b/d Garyville, La., refinery is running at reduced rates but will be back to normal in a week or two.

Citgo Petroleum Corp.'s 320,000 b/d Lake Charles, La., plant, shut down Dec. 23-27, is back to 80% of capacity and will be in full operation in 2 weeks.

BP America Inc.'s 194,750 b/d Belle Chasse, La., refinery cut operations 20% due to fuel line and instrument freeze-up and crude supply reduction but was back in full operation last week.

Operations were slowed at Amoco Oil Co.'s 420,000 b/d Texas City, Tex., plant, but it is back at full capacity.

Champlin Refining Co. shut down its 150,000 b/d Corpus Christi refinery Dec. 23-26 but returned it to full operation Dec. 30.

Hill Petroleum Co. said its 55,300 b/d Krotz Springs, La., and 33,000 b/d St. Rose, La., refineries resumed operations after being shut down.

Phillips Petroleum Co. expected its 175,000 b/d Sweeny, Tex., refinery to return to 85% of capacity by late last week. Throughput fell to 55,000 b/d in the last week of December, and Phillips cut deliveries to contract volumes to minimize effects on future deliveries. Sweeny was expected to be at capacity by mid-January.

BATON ROUGE PLANT

Partial operations resumed Dec. 30-31 at Exxon's Baton Rouge refinery.

The company shut down the plant Dec. 24 when an explosion set off a fire that engulfed two storage tanks holding a combined 3.6 million gal of heating oil and three tanks holding 882,000 gal of lubricating oil. No processing units were severely damaged.

Exxon said the refinery was expected to be operating at about one-half normal throughput by this week. Existing storage and transfer facilities were being used to temporarily route feedstock and products around the damaged area.

Exxon said a return to normal operations requires replacement of damaged pipelines. Product shipments via undamaged pipeline and marine vessel resumed within a few days of the mishap, using stocks available from inventory.

Exxon was still investigating the cause of the explosion.

REGULATIONS EASED

DOE's office of energy emergencies and the Energy Information Administration's oil and gas office were monitoring U.S. market prices.

John Easton, assistant secretary for international affairs and energy emergencies, chaired a Dec. 23 meeting at DOE's Washington headquarters with about 80 representatives of oil and gas companies, pipelines, local distribution firms, other federal agencies, and state energy offices.

The meeting was called to assess fuel shortage problems, identify supply bottlenecks, and develop possible solutions.

DOE said production of heating oil and propane was at an all time high throughout December. Major pipelines-especially propane systems-are operating near capacity.

As a result of the Dec. 23 meeting, DOE is working with the Department of Transportation to expedite requests for waivers to the Jones Act to allow foreign vessels carrying propane from U.S. ports to be diverted to ports in the Northeast U.S.

DOT also agreed to issue waivers so fuel truck drivers can work extended hours to speed deliveries to areas with shortages.

DOE is working with the Interstate Commerce Commission to expedite rail and motor transport of home heating oil and propane.

PRICE SCRUTINY

Governors or other state officials in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, and New Jersey asked the federal government to investigate home heating oil prices or began their own investigations.

The Associated Press reported consumers in some areas of Pennsylvania and New York were paying $1.35-1.40/gal for home heating oil in late December, up about 25% from a month earlier.

The state officials said heating oil prices increased too much to be explained by colder weather alone.

API responded that prices have increased "due to the workings of a competitive market," reflecting "extraordinary demand for home heating oil because of the extended period of record cold weather."

API said, "We believe the calls for a government investigation are unnecessary and unwarranted. The petroleum industry is doing all it can to meet the estimated 30% increase in demand for heating oil.

"Refineries are producing heating oil at the highest rate in 12 years, additional supplies are being imported from all over the world, domestic stocks were drawn down at the rate of 568,000 b/d the week of Dec. 17, and the refining and transportation segments of the industry are working overtime to produce and bring supplies to where they are needed."

DOE said price increases were further drawing heating fuels, especially propane, into affected areas, including rerouting of vessels from overseas.

"The higher spot price in the U.S. should begin attracting imports from Rotterdam, which historically has served as the nearest supplemental supply source to the U.S." DOE said.

Continental and Northwest Airlines early this month planned to add rising jet fuel costs to passenger ticket prices, effective Jan. 10, for the first time since the oil supply crisis of 1973. Continental planned a 4% fare hike, Northwest a temporary $6/ticket surcharge.

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