Energy Sector Roundup: Gasoline and oil higher

Following is a summary of top stories in the energy sector Wednesday afternoon.

Gasoline Prices Higher as Inventories Fall

Gasoline prices keep climbing at the pump. They rose more than 2 cents overnight to a national average of $3.53 a gallon. Oil prices also rose and gas reached new records in the futures market after the weekly inventories report from the Energy Department's Energy Information Administration (EIA) raised new questions about fuel supplies.

Gasoline inventories fell by 3.2 million barrels last week, about a million barrels more than expected, the EIA said. Gas supplies have been falling lately, raising concerns about levels as the summer driving season approaches.

Gas is also affected by crude futures, which rose as investors looked past the EIA's report that crude supplies rose more than expected last week, and the market instead focused on fuel supplies. Light, sweet crude for June delivery rose 23 cents to settle at $118.30 a barrel on the New York Mercantile exchange, while the May gasoline contract rose to a new trading high of $3.0544 a gallon before retreating to settle 3.43 cents higher at $3.0507 a gallon.

The EIA said supplies of distillate fuel, which include diesel and heating oil, fell more than expected last week. But refinery activity jumped, signaling that gasoline, diesel and heating oil supplies might not remain low for long.

May heating oil futures rose 0.81 cent to settle at $3.325 a gallon.

Natural Gas Supplies Forecast to Rise

The Energy Information Administration releases its weekly report on natural gas supplies on Thursday. UBS Investment Research predicts an increase of 35 billion to 45 billion cubic feet.

That would put gas inventories at 1.301 trillion cubic feet, slightly below the five-year average, and 263 billion cubic feet below inventory levels a year ago.

Natural gas futures rose 17.4 cents to settle at $10.781 per 1,000 cubic feet on the Nymex.

Fuel Costs Ground Airlines Earnings

Sky-high fuel prices were again the main culprit in huge losses for airlines in the first quarter. Delta Air Lines Inc. said its first-quarter loss widened to $6.39 billion from a $130 million a year ago, while Northwest Airlines posted a $4.1 billion loss compared with a loss of $292 million last year.

Both airlines _ which have plans to join to become the nation's largest carrier _ pointed to record fuel costs for their earnings woes. Delta spent $1.42 billion on fuel in the quarter, up $585 million from what is spent in the 2007 quarter. Northwest's fuel costs shot up to $1.11 billion, up 57 percent year-over-year.

United Airlines parent UAL Corp., Continental Airlines and American Airlines parent AMR Corp. have also reported quarterly losses, primarily because of fuel costs.

XTO Cost Guidance Disappoints

XTO Energy shares stumbled after the company released its first-quarter earnings and boosted capital spending plans by $500 million. XTO lost $2.55, or 3.7 percent, at $66.56 in afternoon trading.

The oil and gas exploration and production company's profit rose 21 percent from a year ago, to $465 million or 92 cents per share _ about what Wall Street expected.

XTO raised its 2008 production forecast as well. Deutsche Bank analyst Shannon Nome said the production growth comes mostly from recent acquisitions. The company also said it will spend $500 million more on capital projects, and raised cost estimates across the board. That, taken with XTO's recent issue of $2 billion in senior notes, led Nome to cut XTO 2008 earnings per share estimates by 6 percent.

Wachovia Capital Markets analyst David Tameron called the cost guidance "disappointing."

FuelCell Energy Lands Biggest Contract Yet

FuelCell Energy Inc., which makes fuel cells for electric power generation, said South Korea's Posco Power ordered two power plants and fuel cell modules in a deal worth $70 million.

It is the largest contract in the company's history.

FuelCell said the order for the two 25.6 megawatt facilities more than doubles its product backlog. The equipment is scheduled for delivery next year.

One megawatt can power about 778 households a year, according to the Department of Energy.

FuelCell shares picked up 99 cents, or 12.4 percent, at $8.95 in afternoon trading.

"We believe this contract marks an inflection point on the company's growth curve, as these incremental shipments come with reduction in cash burn and, in our estimation, clearly put FuelCell on a path to profitability," Lazard Capital Markets Managing Director Sanjay Shrestha said in a note to investors. He rates FuelCell a "Buy" with a $15 price target.

Alaska Turns Down Exxon Mobil

The state of Alaska rejected a the latest development proposal from Exxon Mobil Corp. involving a rich deposit of oil and gas on the North Slope.

That probably means the court battle over leases at Point Thomson, near the border of the Arctic National Wildlife Refuge, will continue.

Exxon Mobil, BP PLC and Chevron purchased leases 31 years ago allowing them to drill at Point Thomson, but have not yet produced any oil or gas.

The lack of activity prompted the state to try to reclaim the leases in late 2006 and give other companies the opportunity to move forward with development at Point Thomson, which contains nearly one-fourth of the North Slope's 35 trillion cubic feet of natural gas reserves.

Exxon's proposal involves a $1.2 billion gas recycling and condensate production project to be developed over six years. The company said it has already secured a drilling rig and plans to begin development this year.

The development of gas reserves in the Point Thomson field is considered vital to plans for a $30 billion pipeline to transport natural gas to North American markets.

BP and ConocoPhillips have said they would start raising investment for the gas pipeline from interested shippers in 2010. TransCanada Corp. has also submitted its own pipeline plans to the state.

Gazprom Eyes U.S. Markets

Russia's state-controlled natural gas monopoly OAO Gazprom wants to become a major U.S. supplier, according to the head of the company's export arm.

Gazprom is investing billions of dollars to bring new fields into production as old fields become depleted. Some new fields, including the vast Shtokman field under the Arctic Ocean, would put a large part of production into liquefied natural gas (LNG), which could be shipped to the U.S., Gazprom Export head Alexander Medvedev told reporters.

He did not specify how much LNG the company aimed to sell in North America or in what time period, but said, "We are going to realize this potential not only from Shtokman but from the Yamal Peninsula and Sakhalin-2."

Sakhalin-2 is under development off Russia's Pacific Coast. It would be the easiest shipping point for LNG to the U.S. Natural gas is converted into LNG for shipment on tankers. Natural gas is more easily stored and transported as LNG.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.