X-Message-Number: 21878
From: "Mark Plus" <>
Subject: Forbes: U.S. seeks to avoid winter natgas shortages
Date: Wed, 04 Jun 2003 09:46:45 -0700


U.S. seeks to avoid winter natgas shortages
Reuters, 06.03.03, 1:26 PM ET

By Joseph Silha

NEW YORK, June 3 (Reuters) - Facing concerns about natural gas price spikes 
or even shortages this winter, the U.S. government is taking steps to avoid 
any crisis that would leave consumers out in the cold next heating season.

With gas inventories still near record lows and production struggling to 
catch up, concerns have been growing that supply might not suffice to meet 
heating needs six months from now.

"This winter could be a disaster. We're really concerned about making it 
through, but it's tough to do anything in the short-term," said Stephen 
Thumb, principal at Virginia-based consultants Energy Ventures Analysis.

U.S. Energy Secretary Spencer Abraham has called a June 26 meeting of the 
National Petroleum Council, an advisory panel, to devise ways to boost 
natural gas supplies this summer.

While analysts generally agree that there is little government can do to 
immediately boost supply, they cite several steps that can be taken to avert 
a spike in prices above last winter's record high near $12 per million 
British thermal units (mmBtu), almost four times the average over the past 5 


One suggestion is to waive summer restrictions on emissions, shifting 
industrial and power plant demand from cleaner-burning gas to competing 
fuels like oil or coal.

"The most obvious thing would be to try to reallocate demand by encouraging 
people to switch to oil, but the barriers to that tend to be environmental," 
said Leonard Crook, vice president at Virginia-based ICF Consulting.

While even a temporary waiver would probably stir environmental objections, 
analysts estimate it could save more than 1 billion cubic feet of gas a day, 
adding some 200 billion cubic feet (bcf) to storage by the end of the year.

Utilities typically build inventories from April through October to help 
meet peak November to March heating demand.

Storage, which provides up to 20 percent of gas used during high demand 
periods, could start the winter at a record low 2.6 trillion cubic feet, 
barely above what was burned this past winter and well below the 3 tcf 
comfort level normally needed to heat homes and buildings.

While most analysts prefer to allow prices to balance the market, some 
suggest the government could use subsidies such as low cost loans or loan 
guarantees to encourage building stocks.

Cash-strapped utilities and merchant energy companies, the main holders of 
gas inventory, which have been hard hit over the last year by credit 
downgrades, could benefit from such a policy.

In addition, federal or state governments could set up a gas reserve to 
buffer potential shortfalls similar to the strategic petroleum reserve used 
for oil.

By buying and storing gas, governments could sell it back to local 
distribution companies who fall short during winter.

Conservation, a key factor limiting California's power outages in 2001, 
could also reduce demand.


While curbing or shifting demand could help both producers and consumers get 
through this year, analysts say longer-term answers are needed to ensure 
enough gas is on hand to fuel future growth.

"This could be a three-year problem," EVA's Thumb said.

A brutal winter and cold spring this year drained gas inventories to 
all-time record lows and set the stage for the tight 2003-2004 outlook.

Compounding the problem, output from the nation's gas fields slipped some 
3-5 percent last year and is still lagging because energy companies have 
been slow to boost production budgets.

While high prices will deter industrial gas use and draw more imports of 
LNG, or liquefied natural gas, they will not be enough to balance the 
market, analysts say, as demand from power generators and consumers 
continues to increase.

Rhone Resch, vice president at the Natural Gas Supply Association, a 
producer trade group, noted that some 225 tcf in gas reserves are currently 
blocked from drilling.

"There's nothing that will open up new gas supplies right away, but 
government could streamline the permitting process and allow more access to 
federal lands," Resch said, noting it takes 6-18 months to see new supply 
once you start drilling.

Analysts also say royalty relief and tax incentives like accelerated 
depreciation could move small and large producers into gear, while 
encouraging more use of renewable energy like wind or solar power, and 
reduce reliance on fossil fuels.

In the meantime, a lot depends on the weather.

"If we have a normal winter, we should be OK. If we have a hot summer and a 
cold winter, it will be a very tight market," Resch said.

Copyright 2003, Reuters News Service

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