In Natural Gas's Future, Experts See More High Prices and Growing Imports
nytimes.com
June 27, 2003
WASHINGTON, June 26 — Continued high prices for natural gas will drive some industries offshore and increase gas imports by tanker, according to participants at a meeting the Energy Department convened here today to confront gas shortages.
Energy Secretary Spencer Abraham said prices were so high that some companies using natural gas in manufacturing would find it more profitable to shut down and then sell their gas reserves. He and others predicted higher costs for summer electricity and winter heating.
The country is "running out of gas and balancing the demand by destroying jobs," said William S. Stavropoulos, chairman and chief executive of Dow Chemical, which burns natural gas for heat and uses it as an ingredient in chemical products.
On the other hand, John F. Nunley III, director of the energy office of the State of Wyoming, an oil and gas producer, said it was hard to say now what the supply and demand picture would be next winter. "We must keep in mind that things may work out just fine without action by government," said Mr. Nunley, who is chairman of the National Association of State Energy Officials.
Experts trace the current high prices and low inventories to a small dip in production and increased demand over an unusually cold winter.
Higher gas prices are lifting electricity prices and thus revenue for companies that make electricity from coal or nuclear power. They are also stimulating interest in imports.
Patrick Henry Wood III, chairman of the Federal Energy Regulatory Commission, said that the nation's import capacity is about three billion cubic feet a day, but that companies had filed for permits to increase that to nine billion cubic feet a day by 2007. Fifteen projects under study around the country could increase import capacity to more than 13 billion cubic feet a day by 2009, he said.
"The United States is on its way to becoming part of a global gas market," said Daniel Yergin, an energy expert and adviser to the energy secretary. He painted a picture for natural gas in this decade much like that of oil in the 1970's, when prices rose and stimulated drilling, but domestic supplies were still inadequate and imports had to make up the difference.
Natural gas imports could make up 5 percent of American energy demand by 2020, up from well under 1 percent now, Mr. Yergin said, and would come from a broader range of countries than those that supply oil.
Also, he noted, there is no export cartel for natural gas, as there is for oil.
The technology used to turn natural gas into a liquid has improved, and experts say that the price per million British thermal units needed to justify new investment is in the range of $3 to $4.50. Lately the price has hovered around $6, although few expect it to stay that high.
A million B.T.U.'s is the energy equivalent of about 7.2 gallons of diesel fuel. The most modern gas-fired electric plants can make about 140 kilowatt-hours from that amount of gas, which is enough electricity to power a single-family house for three or four days, depending on the climate.
But older plants can produce only about half as much electricity from that amount of gas. If power companies expect high prices to become permanent, they are likely to modernize such plants, which would stretch gas supplies, experts say.
Several participants in the meeting said prices were likely to stay high by historical standards, because the current price squeeze was different from the last crisis. That was in the mid-1970's, when price controls discouraged exploration. When they were lifted, new drilling swelled inventories.
This time, high prices have spurred drilling: there are 915 drilling rigs at work, up about 50 percent over last year. But increases in supplies, when they come, are expected to be modest, because the gas fields on shore in the lower 48 states, in Canada and in the shallow waters of the Gulf of Mexico, are past their prime, experts say.
Some experts said domestic production could be pushed up sharply if the industry were allowed into the eastern Gulf of Mexico and the Atlantic and Pacific coasts — where drilling has been barred by successive Republican and Democratic administrations — and on public lands.
Some power producers have raised the idea that because natural gas prices are high, the federal government should temporarily relax air pollution rules, allowing more coal and oil to be burned. Coal is burned in specialized plants but some turbines designed for natural gas can burn oil as well.
But E. Linn Draper Jr., chairman and chief executive of American Electric Power, the nation's biggest coal customer, said today that that idea was "premature."
Robert Card, an under secretary of energy, said in an interview that his department would not propose measures that would make air pollution worse, but might endorse them if states raised the issue, as California did during its electricity crisis.
Daniel A. Lashof of the Natural Resources Defense Council told the group that the country should ride out this boom part of the boom-and-bust gas business. "High gas prices inflict harm on people and our economy, but so does pollution," he said.
Outside the meeting, at the Mayflower Hotel, about two dozen protesters from the U.S. Public Interest Research Group carried signs with slogans like "Windmills, not oil wells."
The Energy Department announced today that last week, for the fourth consecutive week, the amount of gas put into storage for winter set a record. The total, though, is still about 19 percent below the five-year average for this time of year. |
