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A domino effect from rate hike

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Soon every American will feel the fallout of soaring natural gas prices in the form of more expensive food, higher home heating prices and higher prices for most consumer products, according to the Virginia-based American Chemistry Council, a group composed of the nation's largest industrial natural gas users.

In Utah, higher national natural gas prices are the reason behind a 25 percent residential rate increase that took effect Tuesday. That increase for Questar Gas Co. will raise the typical Utah household's annual natural gas bill by another $171, according to the Utah Public Service Commission.

Natural gas represents about 25 percent of U.S. energy consumption.

Yet consumers aren't the only ones feeling the brunt of higher natural gas prices. Some industrial users are reeling from a volatile market that has shown no stabilizing trend.

As recently as February, natural gas was trading on the New York Mercantile Exchange at more than $11 per million British thermal units, about five times the price levels of the 1990s and up 70 percent over the past year.

"The prices are a crisis for industrial con-

sumers that we buy gas for," said Matt Medura, a senior consultant for Salt Lake-based Energy Strategies. "They're blowing budgets out of the water. It's a very large concern."

Intermountain Health Care saw natural gas costs for its hospitals increase to $1.6 million during the first five months of this year, a one-third higher price over last year, said Daron Cowley, a spokesman for the company.

Don Olsen, spokesman for the Salt Lake-based Huntsman companies, said natural gas prices have reached crisis proportions.

"The whole manufacturing sector of this economy is in deep, deep trouble," Olsen said. "We can't pass along the costs like a utility can. We just have to eat it."

For Huntsman and other chemical producers, natural gas prices are actually cheaper in Europe, almost half the U.S. price, shifting some production overseas and contributing to a less competitive U.S. manufacturing sector.

According to a new report by Global Insight, the high cost of natural gas prices could lead to extraordinary heating bills for households this winter and drive up electricity prices this summer as power plants use natural gas to generate their turbines in meeting peak electricity demand loads from air conditioners.

The turmoil, the report said, is driven by a shortfall in natural gas supplies. According to the U.S. Energy Information Administration, natural gas inventories increased 127 billion cubic feet to 1,565 Bcf for the week ended June 20. Those levels are 70 percent of year-ago stocks and 19 percent under the nation's five-year storage average.

Sustained high prices may lead to a scenario similar to that of the oil price shocks of the 1970s, the report said, leading to slowed economic activity and a possible loss of 100,000 U.S. jobs.

"The outlook for the coming winter is for another season of hardship," the report said. "With normal temperatures, homeowners' expenditures for heating will exceed last year's level in every region."

Medura forecasts natural gas in the Rockies for July to average $4.20 to $4.30 per million Btu, about $1 cheaper than gas currently traded on the NYMEX, which for August delivery was trading on Tuesday at $5.32 per million Btu.

Barrie McKay, director of regulatory affairs for Salt Lake-based Questar Gas, said that while gas costs for its customers remain among the lowest in the nation, the company is concerned for its customers.

"Some businesses, this is very difficult for them," McKay said. "We do think in the long run that we can get rid of our shortage by finding and developing new sources for gas, and I promise you gas prices will come down in the U.S."

E-MAIL: danderton@desnews.com