GAS CRUNCH PINCHES CALIFORNIA FIRMS
Byline: Katherine Bowers
LOS ANGELES — California’s current discussion of fat pipes is not a Silicon valley quandary about bandwidth, but a question about the space available on interstate pipelines to transport natural gas to a state hungry for supply.
In the past four months, prices for natural gas have zig-zagged more than the Nasdaq, spiking in December at $9 per therm — the standard unit of heat measurement — nearly quadruple the rates seen for most of the Nineties.
The rising costs have put the California textile industry into a tailspin, resulting in closures of major firms such as L.A. Dye & Print, a 900-person operation that shut its doors in February. A typical bill for a large textile firm leapt from $200,000 to more than $1.1 million a month, according to Scott Edwards, president of the Association of Textile Dyers, Printers and Finishers of Southern California.
Transporters, who bring more than 80 percent of Southern California’s gas supply in from other Western states, claim that there is simply not enough space in the pipes to meet unusually high demand fueled by colder temperatures and low hydropower production from the Pacific Northwest. The lowered supply has meant that textile companies, which contract for gas supplies through third-party agents, are buying gas at the California border and paying high premiums.
Currently, a large portion of pipeline capacity is tied up in long-term contracts with San Diego-based gas company Sempra Energy, which supplies to residential customers and small businesses, as well as to San Francisco-based utility company Pacific Gas & Electric.
Some textile companies are crying foul play, claiming that the space shortage in the pipeline has been exaggerated.
Edwards’s textile association, which has 35 members, filed a class-action lawsuit against transporters of natural gas in Los Angeles Superior Court on Dec. 15. The antitrust suit charges transporters with restraint of trade, conspiracy to monopolize and unfair competition and business practices.
But while the legal wheels slowly turn, gas costs are moving up the food chain to apparel manufacturers, who are facing surcharges and quality problems from suppliers scrambling to cut costs. Lonnie Kane, president of Los Angeles-based contemporary sportswear company Karen Kane, said white knitwear had come in looking “dirty” because his finisher had cut the heat-set stage out of the process.
“As we’re talking, up came the point that if I’m willing to pay a surcharge, then we can get the goods right,” said Kane, who added that the charge is eating into margins because he can’t raise his prices to retailers.
The majority of Southern California processors are slapping a 10 percent surcharge on jobs, said Leonard Horowitz, executive director of Textile Association of Los Angeles Inc. But, Horowitz added, the surcharge does not begin to cover the increases of the gas bills and processors will not be competitive with East Coast or offshore processors if they raise prices further.
Other textile companies are using different strategies.
Mark Lesser, president of sportswear firm Wearable Integrity Inc., said the garment dyer he uses, Los Angeles-based La Corona, has switched to night shifts in order get a break on its gas bill. Lesser said the company told him the gas bill went from $9,000 to $45,000 a month. La Corona did not return a call at press time.
Although the prices have come down somewhat — they’re currently about $5 per therm — relief may be a while in coming. It will take several years before new drilling and the seven proposed pipeline projects come to fruition, said industry sources.