Monday, November 8

Higher natural gas costs go far beyond heating

By Dennis Camire

Gannett News Service

WASHINGTON - Consumers are being warned to prepare for higher heating bills this year, but they may not realize that natural gas price increases could affect them in other ways.

The fuel is used in a wide array of products and services such as cosmetics, self-service laundries, electrical power generation, detergent, paint, medical supplies and plastics.

The higher cost of natural gas will be passed along to some extent in the prices of those products, said Darren McKinney, spokesman for the National Association of Manufacturers.

``Whether it's razor blades or soup or whatever else that you're going to buy at the retail or wholesale level, as energy prices rise - natural gas in particular - will invariably exert inflationary pressures throughout the economy,'' McKinney said.

Gary Gray, owner of 15 coin-operated laundries in Little Rock, Ark., said one way he has dealt with the high price of natural gas - used to heat water for washing and to dry clothes - is to decrease the number of minutes a quarter will buy in a dryer.

``It used to be the norm for me was 10 minutes for a quarter,'' said Gray, who said his natural gas costs have gone up by about 20 percent. ``I've lowered it to eight minutes.''

Consumers of natural gas have paid $143.7 billion more for natural gas in the past 49 months when compared with the price paid during the previous 49-month period, said Paul N. Cicio, executive director of the Industrial Energy Consumers of America.

Residential users have footed about $43.4 billion in extra costs while manufacturers have paid $72.9 billion more and commercial consumers picked up the tab for $27.4 billion, Cicio said.

While the most visible result for consumers is higher home heating bills, other consequences include higher costs for food, detergent, paint, medical supplies and telecommunications, Cicio said.

Cleveland-based Zaclon Inc. uses natural gas to make chemicals for galvanizing steel that goes into products such as car body parts, highway guard rails and even street sign posts.

James B. Krimmel, the company's president, said natural gas is ``my third highest cost behind all other raw material and labor.''

Krimmel said his company passes along some of the cost increases but not all.

This winter's forecast calls for residential natural gas prices to be 11 percent higher than they were last year. Overall, expenses for home heating are expected to increase about 15 percent, according to a report from the federal Energy Information Administration.

The price residential consumers pay includes the cost of the gas, transmission to the utility and storage, and distribution to homes and businesses. About one-third of the final cost is the actual price of the gas, according to the agency.

Since last winter, natural gas prices for home consumers have soared from an average of $9.69 per thousand cubic feet in January to $13.78 in August, according to the Energy Information Administration.

A typical 1,600-square-foot suburban home - three bedrooms and two baths - uses about 8,300 cubic feet of natural gas each month for heat and hot water, according to the Independent Petroleum Association of America.

At last January's prices, a household would spend $996 for natural gas over the course of a year.

Gary Huss, president of Hudapack Metal Treating Inc., said his natural gas bill has jumped from roughly $20,000 a month in each of his three plants in southern Wisconsin and northern Illinois to $60,000 a month.

Hudapack heat-hardens steel to be used for things like knife and lawnmower blades, gears and fuel injectors for Caterpillar engines.

``We do a lot of parts that hold Harley-Davidson motorcycles together,'' he said. ``We also do some very small screws about the size of eyeglass screws that are used in some very critical applications such as computer boards.''

But Huss said the high increase in natural gas prices has cut the industry's profitability from about 15 percent a number of years ago to less than 5 percent today.

Passing along the natural gas increases has been tough, Huss said.

``Over the past couple of years, it's been suck it up and take it,'' he said. ``This year, with the fact that the economy really has been coming on strong for the past six months to a year, we've had the opportunity to pass on some of the increases to our customers.''

The increase in natural gas prices dates back to the winter of 2000-01, analysts and economists said.

Demand built as the population grew and new gas-fired electric generating plants came on line.

Natural gas consumption by the electric industry is a major problem, Cicio said. From 1992 to 2002, the electric industry's demand for natural gas increased by more than 60 percent and accounted for almost 94 percent of the nation's increase in demand, he said.

At the same time, the supply of natural gas was growing very little.

The recent high price of crude oil also has helped push natural gas prices to high levels.