X-Message-Number: 21939
From: "Mark Plus" <>
Subject: Is the Natural Gas Crunch About to Become a Crisis?
Date: Mon, 09 Jun 2003 19:01:06 -0700


JUNE 16, 2003


Is the Natural Gas Crunch About to Become a Crisis?

Wall Street and Washington expend megawatts of energy trying to decipher the 
delphic pronouncements of Alan Greenspan. But the Fed chairman didn't need 
much interpretation on May 21 when he warned Congress about spiraling 
natural gas prices. "I'm quite surprised at how little attention the natural 
gas problem has been getting," he said, "because it is a very serious 
problem." That's a position he is expected to reiterate when he appears 
before the House Energy & Commerce Committee on June 10.

In fact, the natural gas crunch is so serious that it might complicate 
President Bush's 2004 reelection. The economic pinch from higher prices 
could become a big issue in early contests in Midwestern swing states 
heavily dependent on gas heating, including Iowa and Michigan. Democrats 
will no doubt blame the spike on the Administration and its energy industry 
allies. Bush also could be forced onto the defensive in pivotal states such 
as Illinois, Ohio, Pennsylvania, and Wisconsin.

In a sign the Administration is worried, Energy Secretary Spencer Abraham is 
holding an emergency natural gas summit in late June to discuss short-term 
solutions. "A hot summer could increase demand for natural gas and 
exacerbate the problem," Abraham says. "The challenge requires us to act 

Trouble is, there's only so much the White House can do by winter. While 
inventories rose in the week ending May 23, to 1,085 billion cubic feet, 
they're still well below the five-year average of 1,593 bcf -- and nowhere 
near the comfort zone of 3,000 bcf. "It doesn't look like we're going to 
catch up," says Thomas E. Capps, CEO of utility Dominion Resources (D ) Inc.

Economists attribute the doubling of prices over the past year to stepped-up 
demand caused by a cold winter and shrinking imports, diminishing production 
from old wells, and low output from new fields. The industry also blames 
Wall Street for insisting on higher profits today at the expense of future 

Whatever the causes, with natural gas accounting for 22% of energy 
consumption, manufacturers and consumers are being squeezed. The Federal 
Energy Information Administration expects that consumers -- having weathered 
a 30% boost in bills last winter -- will be forced to ante up at least 6% 
more this coming home-heating season. That would make it the 
second-most-expensive winter in recent decades.

Industry titans such as Dow Chemical (DOW ) and International Paper (IP ) 
report higher prices are pinching profits. One small manufacturer, 
Mississippi Chemical, even blamed gas prices for its recent bankruptcy. 
"We're facing an extremely difficult challenge," says Andrew D. Weissman, 
chairman of Energy Ventures Group, a Washington investment firm. "Major 
industries may have to shut down this winter." Chemical and fertilizer 
companies are particularly vulnerable, since they use natural gas to make 
their products.

On Capitol Hill, lawmakers are struggling to respond to an energy crunch -- 
but the wrong one. The energy bill now in Congress addresses the 2000-01 
California crisis by strengthening the Federal Energy Regulatory 
Commission's ability to prevent Enron-type scandals. Meanwhile, the natural 
gas industry -- which has warned of shortages for years -- has run into 
resistance from lawmakers who don't want energy exploration in their 
constituents' backyards.

Any relief under consideration seems destined to be long-term. The energy 
bill includes some royalty reductions for producers, $20 billion to build a 
natural gas pipeline from Alaska to the Lower 48, and a measure reducing to 
under a year the time it takes to win drilling permits. But there won't be 
any impact on supply for several years. That will be too late to help a 
President vying for another term.

By Laura Cohn

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