Quote:
Originally Posted by Mark_Twain
One need not look at the third world. I hear there's a report in a Minnesota newspaper today (I presume either the paper in Minneapolis or St. Paul) that looks at home heating bills in the state. Apparently, there are record numbers of people who haven't paid their gas bill from last winter (about 20% of all customers) with an average outstanding balance of around $1,500. At the same time, the gas company saw its 1st Q NET profit go from $88 million in 2006 to a 1st Q Net profit of $130 million in 2007.
So, what we see is a privatized company gouging its customers so much so that those who can afford to pay do so (dearly) and more than make up for about 1 in 5 of the customers who cannot afford to pay.
I would expect this problem to be compounded in the winter of 2007-08, as I hear global warming will not spread fast enough to completely end the notoriously harsh winters of Minnesota.
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What we see are a few things.
We see an industry that has been relying on existing sources of natural gas to meet a growing demand. This was all good until the demand caught up with supply. In fact, natural gas production has been in decline since 2000 precisely because natural gas companies relied so heavily on their existing reserves. Now those suppliers are having to spend a fair chunk of change looking for new sources and retooling to tap those resources. Supply hasn't kept up with demand.
We also see environmental regulations restricting where companies can drill. Hurdles like this make it harder for newcomers to enter the market which would force prices down. Obscene profit margins draw capitalists like flies to garbage. But the more obstacles that are in the way, the higher the existing players can keep prices without fear of losing business. Of course, it's not like the existing companies are all broken up over barriers to new competition.
What we really see is an industry that is providing a product people (80% of them, anyway) are willing to pay for. Right now, natural gas prices are still low enough that its competitive with electricity for things like water heaters. If natural gas prices go up much farther, the lack of supply won't be an issue for suppliers because they'll start losing business.
Natural gas suppliers have been living on borrowed time for a while.