- The Washington Times - Tuesday, June 10, 2003

From combined dispatches

Consumers and businesses will face sharply rising prices for natural gas into next year, Federal Reserve Chairman Alan Greenspan said yesterday.

The price of gas has nearly doubled in the past year, to $6.31 per million British thermal units, because of persistent shortages, and there is a 25 percent chance that by winter the “peak price will exceed $7.50 per million Btu,” Mr. Greenspan said.

“We are not apt to return to earlier periods of relative abundance and low prices anytime soon,” the nation’s central bank chief told the House Energy and Commerce Committee.

Another witness, Donald Mason, head of Ohio’s Public Utilities Commission, predicted that the average residential heating bill next winter will be at least $220 higher per household than last winter.

Industry analysts have said the acute shortages could cause heating prices to soar 80 percent next winter.

Local gas utilities said yesterday that they are paying more for their gas than a year ago but had differing opinions about how much customers will pay this winter.

“We can pretty much expect going into the winter we’ll have the highest prices we’ve ever had,” said Dan Donovan, spokesman for Virginia provider Dominion Energy.

But Tim Sargeant, a spokesman for Washington Gas, said that if the weather from November to April is normal, customers can expect to pay about 6 percent less for service than last year, one of the coldest and snowiest on record.

Mr. Sargeant said Washington Gas will have one-third the gas it needs in storage for the winter.

Baltimore Gas and Electric said it could not project the cost of gas to customers this winter but that it typically buys 40 percent of its gas in the summer to protect against winter price increases.

At the end of May, U.S. gas inventories were 28 percent below their five-year average, said Guy Caruso, administrator of the Energy Information Administration. “The exceptionally low level of natural-gas storage continues to place unusually strong upward pressure on near-term natural-gas prices,” he told the committee.

Energy Secretary Spencer Abraham said Friday that he had called for a meeting of the National Petroleum Council on June 26 to create a plan to increase inventories.

“Industry is already responding by increasing storage rates, marked this week by a record storage injection, but a hot summer could increase demand for natural gas and exacerbate the problem,” he said.

The colder-than-usual conditions that have prevailed since October in New York, Chicago and other Northern cities will end this weekend, ushering in hot weather for most of the rest of the spring and summer, say 10 meteorologists surveyed by Bloomberg News.

The temperatures, which will range from 0.5 to 4 degrees Fahrenheit above normal through August, will boost demand for electricity. That will strain low reserves of natural gas, heating oil and other power-plant fuels, analysts said.

“Given that we’re coming out of eight months of cooler-than-normal weather, this warmth is going to shock people,” said Dale Mohler, a meteorologist at Accuweather Inc. in State College, Pa.

One reason for the summer’s low supply is the unusually cold winter on the East Coast.

But analysts say the problem runs much deeper than one frosty season. The demand for natural gas has been rising sharply since the 1980s, when consumers and businesses began to find more uses for it. For example, natural gas, a clean-burning fuel, is often used now in electricity-generating plants. That means that natural gas is being used even during the summer as air conditioners run.

Gas production has not kept pace with this new demand.

Diemer True, chairman of the Independent Petroleum Association of America, a trade group representing natural-gas producers, said in a statement yesterday that “wells are depleting at record rates.”

He blamed energy traders, lenders, environmentalists and lawyers.

“Drilling costs have substantially increased,” he said. “Access to capital has been constrained by factors ranging from the collapse of the merchant energy business to restrictive lending practices by financial institutions. Antidevelopment groups have ensnared government and the industry in a strategy of time-consuming litigation.”

Mr. Greenspan said gas-consuming industries have been put in a “weakened competitive position” by the high prices.

He said the best solution would be to import more natural gas.

Imports accounted for 1 percent of U.S. gas supplies in 2001, Mr. Greenspan said. If regulators were to allow the development of more import terminals for liquid natural gas, U.S. companies could gain “access to the vast world reserves of gas,” he said.

Carl English, an industry executive who testified on behalf of the American Gas Association, had a different recommendation.

He said Congress should ease the gas shortage by allowing for more exploration on federal lands in the Rocky Mountain region, in Alaska and in coastal waters. For example, restrictions on drilling near Destin, Fla., on the eastern Gulf of Mexico, “was a serious step back in terms of satisfying consumer gas demand,” he said.

Environmental groups generally oppose efforts to open more federal lands and coastal waters to drilling.

This week the Senate is considering a broad energy bill that would offer billions of dollars in tax incentives for oil and gas drilling, as well as energy conservation programs. The House has passed an energy bill.

Staff writer Tim Lemke contributed to this report.

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