Message-ID: <23262627.1075845168128.JavaMail.evans@thyme> Date: Mon, 4 Jun 2001 07:59:36 -0700 (PDT) From: brad.mckay@enron.com To: scott.neal@enron.com, f..keavey@enron.com, vladi.pimenov@enron.com, robin.barbe@enron.com, john.hodge@enron.com, scott.hendrickson@enron.com, tammi.depaolis@enron.com, craig.taylor@enron.com, maureen.smith@enron.com Subject: FW: (BN ) Power Plants Returning to Natural Gas as Prices Fall: Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mckay, Brad X-To: Neal, Scott , Keavey, Peter F. , Pimenov, Vladi , Barbe, Robin , Hodge, John , Hendrickson, Scott , DePaolis, Tammi , Taylor, Craig , Smith, Maureen X-cc: X-bcc: X-Folder: \Hendrickson, Scott\Hendrickson, Scott\Inbox X-Origin: HENDRICKSON-S X-FileName: Hendrickson, Scott.pst -----Original Message----- From: "BRAD MCKAY, ENRON CORP." @ENRON [mailto:IMCEANOTES-+22BRAD+20MCKAY+2C+20ENRON+20CORP+2E+22+20+3CBMCKAY2+40bloomberg+2Enet+3E+40ENRON@ENRON.com] Sent: Monday, June 04, 2001 9:55 AM To: BMCKAY@ENRON.COM Subject: (BN ) Power Plants Returning to Natural Gas as Prices Fall: T Power Plants Returning to Natural Gas as Prices Fall: Outlook 2001-06-02 17:26 (New York) Power Plants Returning to Natural Gas as Prices Fall: Outlook Palatka, Florida, June 2 (Bloomberg) -- Natural gas is burning again at Florida Power & Light Co.'s Putnam power plant in Palatka. Last winter, Florida's largest utility reconfigured the plant to run on fuel oil instead of natural gas, a cleaner-burning fuel that for years had been comparatively cheap. Last month, as gas prices plunged to a 10-month low, the plant switched back to gas. Florida Power & Light wasn't the only one. Many electric utilities in the U.S. are able to burn both fuels, and several are making the switch to gas, which is now cheaper than oil in some regions. Companies such as Detroit Edison Co. had been burning oil since the winter. ``It wasn't really until the early May timeframe, when gas and oil prices crossed paths and gas became cheaper,'' that the switch was made, said Gary Lapplander, the company's manager of fuel supply. Michigan's largest electric utility had been running its 780-megawatt Greenwood plant near Port Huron on oil since last December. Fears of winter shortages drove natural gas futures on the New York Mercantile Exchange to a record $10.10 per million British thermal units in late December, more than quadruple the year-earlier price. This year, prices have fallen below $4, partly because last year's rally caused so many generators and industrial customers to seek alternate fuels, such as oil. Saving Money Fuel can account for more than 90 percent of a power plant's operating costs, according to some estimates. Mild weather across the U.S. this spring has reduced demand for gas to heat homes and power air conditioners, while record drilling in the past year has led to higher gas flows from U.S. wells. Since late March, utilities have been pumping gas into underground storage at almost three times last year's rate, according to American Gas Association figures. Fuel oil has a much different story. Prices for No. 6 residual fuel oil -- the grade most commonly burned in power plants -- are linked to crude oil prices, which have climbed 4 percent this year. The Organization of Petroleum Exporting Countries has cut crude oil production twice this year after raising it four times in 2000. And refiners have been sopping up supplies in recent months to make gasoline for the summer driving season. Natural gas prices at Chicago's distribution hub fell below fuel oil prices during the week ended May 18, the first time it was cheaper in almost seven months, according to Bloomberg figures. Fuel oil prices in Chicago are little changed this year. ``It's really a factor of economics,'' said Carol Clawson, a spokeswoman for Juno Beach, Florida-based FPL Group Inc., parent of Florida Power & Light, which can switch about a quarter of its power plants between gas and oil on a few hours' notice. ``We are detecting gas prices coming down, and as that occurs, we are going back to gas.'' Fear of a Rally To be sure, some power-plant operators may be wary of switching back to gas because of the chances for a rally this summer, said Tim Evans, senior energy analyst at IFR Pegasus in New York. As hot weather arrives, homeowners and businesses will turn up their air conditioners, pushing electricity use higher and lifting gas demand. Natural gas futures last summer rose 29 percent. Adding to that demand, gas-fired power plants with about 25,000 megawatts of capacity are expected to start up this summer, according to a U.S. Energy Department report published last month. Last year, about 22,000 megawatts of new gas plants started up, boosting total U.S. gas demand by 500 billion cubic feet, or 2.3 percent. A megawatt is enough to light 1,000 homes. Other variables in the gas market include the extent of any heat waves this summer, and whether hurricanes will enter the Gulf of Mexico, disrupting operations at offshore rigs that account for a quarter of U.S. production. ``People don't fully trust gas,'' Evans said. ``They're wondering if it's going to remain the cheaper fuel, or if it's just going to turn around and do to them what it did last winter.'' Still Cheaper Oil is still cheaper than gas in some regions. In the New York City area, where utilities don't have to pay as much to get oil delivered from tanker terminals in New York harbor, heavy fuel oil costs $3.89 per million Btu, compared with $3.99 for natural gas, according to Bloomberg figures. Even so, the drop in gas prices has prompted Brooklyn, New York-based Keyspan Energy Corp. to increase gas's share of its total power generation to about 40 percent, said company spokesman David Manning. That's up from about 3.5 percent at one point last December. Normally, almost all of the company's plants would be burning gas at this time of year, Manning said. Keyspan produces power for about 1.1 million customers on Long Island. ``We're right on the cusp'' of gas prices falling low enough to switch the remainder of the company's generation away from oil, he said. ``We would anticipate we will be running on gas even more this summer, unless something dramatic happens with the weather.'' --Bradley Keoun in the New York newsroom (212) 318-2310 or at bkeoun@bloomberg.net /wb Story illustration: For a table comparing No. 6 residual fuel oil prices in Chicago to wholesale natural gas prices at the Chicago hub, see: {US06CHIC NAGANGPL HS3 }. To compare natural gas futures prices on the New York Mercantile Exchange with crude oil futures, see: {NG1 CL1 HS2 }. Company News: FPL US CN KSE US CN NI GAS NI OIL NI NRG NI RVU NI FEA NI WIN NI US NI NY NI FL NI ELC NI UTI NI TOP _ -0- (BN ) Jun/02/2001 21:26 GMT