>Off Peak
July 15, 2003
Gas Crisis Goes to the Chat Room
Where ex utility CEOs lurk and spill their guts.
Price Beyond Reach?
Adipocere1066, 06/18/03, 01:46 a.m.: "My gut tells me either it's going to be too expensive for the 'average joe' (who will switch to expensive but available electric space heating), or it will be rationed by market forces (or the federal government), or 50 years down the road, [it will] just not be available at all at any price to conserve resources. I suppose folks could switch from other domestic uses (gas ranges, clothes dryers, and water heaters) to electric ones in the meantime, to keep what gas is available for space heating. whatcha think?
"I also see the federal ban on new construction residential/commercial space heating coming back, ala 1978-82 ... especially if new wells as a whole do not produce in sufficient quantities. Any comments/opinions?"
Is There Enough?
Oystergrouch 06/20/03 10:43 a.m.: "What will happen to companies with no alternative fuel ability? Is there a possibility that a gas-only company could actually run out of gas in the middle of a cold winter?"
It Depends
CEO_experience_30yrs_total, 06/20/03, 07:00 p.m.: "Analysts make statements like that because, in my opinion, they are confused and work on a simple business model that doesn't apply. The theory, let alone the application, of economics to utility rate regulation is NOT taught in business schools-not even Harvard or U of Chicago!! Also, first, they need to qualify any such remark by defining a gas company: is it regulated or do most of the earnings come from regulated activities?
"You are correct; for regulated companies, the cost of gas is a pass-through. The regulated company cannot, by law, add a markup to the cost of gas. They are only allowed to charge fees for their service. … But negotiating/litigating the design of the rates with the Commission Staff is only part of the success equation, as I have discussed before."
Sell Your Stock
Sunfund, 06/21/03 01:58 p.m.: "I've been considering reducing holdings in [gas distribution companies]. … I'm a bit worried that maybe PE's for LDCs should be 10 instead of 15, and I'm a bit worried customers get mad at the local gas utility when home heating bills increase."
Remember the Pacific Decadal Oscillator
Oystergrouch, 06/21/03, 02:39 p.m.: About 3-4 weeks ago Barron's ran an article describing a weather pattern recently identified (about 1996). It is called the Pacific Decadal Oscillator. Decadal, meaning many decades, and oscillator, meaning back-and-forth. This phenomenon has a cycle of 20-30 years. One phase produces hot weather and the other cold weather. We have just finished about 20 years of the warm cycle and are in the early stages of a cold cycle. If this is accurate, in the north we will have colder winters and need more gas. In the southwest it will be hotter and drier. And so, more demand on airconditioners. Gas companies should benefit. That is why I was looking at them."
Invest in Producers, Producers, Producers
Sunfund, 06/21/03, 3:00 p.m.: "I'm watching several producers. I don't know if the widespread expectation for continued high natural gas prices is correct. It has been a sensible expectation for some time, but the gas price has gone from $2 to $10 (perhaps an artificial price), to $2, and now to $6. Many of the producers have hedged a good portion of their future production at prices below the current price. … Gas exploration and production issues would seem to relate to their debt, where the gas is located, whether they have reserves in areas where production is declining, or areas where more gas is being found. Some investors may be uncomfortable with environmental considerations relating to where the gas wells are located, and the production of coal seam gas, which involves the use of water, and water left over from the process of extracting the gas. Few of the pure E&P companies I am aware of pay out much of a dividend."
You the Man
Oystergrouch, 06/22/03 11:12 a.m.: "Thanks Sunfund. That was a great post. Gave me lots of info and ideas."
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