Mississippi manufacturers eye rising natural gas costs

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Published: July 24,2000

Imagine that your electricity bill in July has gone up 90% over the what you paid earlier in the year for the same amount of electricity. Consumers would be up in arms.

But that is the situation facing natural gas users. For example, six months ago one Mississippi natural gas user was paying $2.49 per mmbtu. In June costs had gone up to $4.73 per mmbtu. The steep price increases are causing great concern among Mississippi manufacturers.

“Gas prices are a very hot topic these days,” said Wally Majors, president of Utility Analysts in Jackson, a consulting firm that helps private industries get the best utility rates. “There are a lot of impacts on us here. For a lot of industrial customers, the cost of natural gas can be a significant part of their overall annual budget. Their productivity is dependent on natural gas.”

Majors has received a number of calls from existing clients and others who are very concerned about the price hikes. But, unfortunately, the prices are dictated by the commodity market.

“My business is to help customers reduce utility costs,” Majors said. “There’s not a lot I can do.”

Small industrial customers may have it the worst. Medium and large industrial customers that consume a lot of natural gas can buy their own gas in the deregulated market, so they have some control over their destiny. Small industrial customers aren’t able to contract for the best prices.

“The little industrial guy is hurting more than anyone,” Majors said. “They are asking for help, and no one is being able to do anything for them.”

The problem is made more difficult by the fact that most small industries operate on a very tight profit margin. There simply isn’t enough profit to absorb huge increases in operating costs.

There is also concern about how long the high prices will last, and if prices will go even higher next winter. Normally June and July have the lowest prices for natural gas because demand is down. Natural gas is used primarily by industrial customers in the summer while in the winter it is also used for heating homes and businesses.

“Gas prices are acting in an opposite manner to what we are accustomed to,” Majors said. “It is the height of summer and prices are the highest anyone can remember. It is kind of scary. If it can act like this in the summer, what will happen this winter if we get low supplies and can’t meet the demand? If predictions come in for a harsher winter than normal, then the price will really go up because expectations will be that supply may not be able to meet demand.”

Jerry McBride, president of the Mississippi Manufacturers Association (MMA), also has been hearing a lot of concern about natural gas prices.

“It’s a resource in your product,” McBride said. “If the price all of the sudden goes up, it can affect your competitiveness.”

Mark Leggett, MMA senior director of governmental affairs, said manufacturers are getting a double whammy with higher natural gas prices combined with an extremely hot summer that is also increasing bills for air conditioning. Also, utilities that generate electricity from natural gas will pass along higher fuel costs to customers. So even if an industry uses the same amount of electricity this summer as the summer of 1999, prices could still increase.

Leggett said at one time power plants could switch to crude oil as an alternative when natural gas prices escalated. That is no longer an option because crude oil prices are so high.

“Plants may be running their boilers on natural gas, and then also using electricity,” Leggett said. “Natural gas went up, and then electricity went up. So it is having its effect on folks. We’re not sure what we can do about it.”

The higher natural gas prices are not creating a financial bonanza for natural gas companies in Mississippi, according to Phil Hardwick, vice president of community and economic development for Mississippi Valley Gas. Hardwick said Mississippi Valley Gas and other gas companies in the state deliver natural gas rather than producing it. He said Mississippi Valley Gas gets paid the same delivery fee whether the cost of natural gas is high or low.

“Our only profits come from delivery costs,” Hardwick said. “We do not make one dime of profit more if gas costs on the open market go up. If the higher costs result in less demand for customers, our profits would actually go down. That is the thing that is hardest to explain to our customers. The reality is that we are making less money because our customers are using less gas.”

Hardwick said there is a lot of concern among Mississippi Valley Gas customers.

“It’s a crazy market right now,” he said. “We’re paying more for gas now in the summer than we usually do in the winter. It is just upside down.”

Editor’s note: Next week the Mississippi Business Journal will look at the issue of what factors are driving the increase in natural gas prices.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

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