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Natural Gas, Naturally High   (October 19, 2005)

There seems to be little official recognition, either from the political leadership or Wall Street, that there's a knife in the back of the American consumer which will bleed him dry: the rising cost of natural gas. It is instructive to go over the basic facts as reported in the Wall Street Journal on 10/17/05:
As temperatures drop, people who heat their homes with natural gas -- about 57% of the 110 million U.S. households, according to the Census Bureau -- are in for an unpleasant jolt. Natural-gas prices have risen above $13 per million British thermal units from around $7 a year ago. Most of that extra cost is getting reflected directly in gas bills. Owners of gas-heated homes should expect to spend an average of $1,096 this winter, up 48% from last winter's already-high prices, according to the federal Energy Information Administration.

For many families, high bills could result in greater credit-card debt, delinquent payments, utility shutoffs and diminished Christmas spending. When to disconnect customers who don't pay their bills is likely to be a touchy issue.

Unlike oil, it's hard to ship natural gas across the ocean, so more than 97% of U.S. supply comes from North America. During the past 12 months, natural-gas prices for consumers have risen 28.1%, according to the Bureau of Labor Statistics.

In December 1999, the National Petroleum Council, an industry group that advises the energy secretary, said there were "sufficient resources...to meet growing demand well into the 21st century." The council projected average prices through 2010 wouldn't rise much beyond $3 per million BTUs. It was wrong. The last time natural gas traded below $3 was August 2002. On Friday, November natural-gas futures were priced at $13.22.

Wells these days are finding less gas and running dry faster. In 1990, energy companies drilling in the lower 48 U.S. states and the Gulf of Mexico could expect a new well to produce 12% less in its second year. By 2004, wells were expected to lose 37% of production in their second year, according to IHS Energy.
I have bolded the above quote to highlight just how inaccurate official projections were on the future cost of energy. The above facts suggest taking all predictions that energy costs will fall soon with a very large, if not extremely large, grain of salt.

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copyright © 2005 Charles Hugh Smith. All rights reserved in all media.

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