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EIA's Caruso Says Customers to Feel 'Economic Pain' of Gas Prices This Winter

Natural gas customers nationwide are going to suffer the "economic pain" of high prices and tight supply this winter in the wake of Hurricane Katrina, the head of the Energy Information Administration told a House subcommittee last Wednesday.

Residential gas prices are poised to rise by 47% over the 2004-2005 winter heating season, with customers in the North Central region expected to experience a nearly 60% rise in gas prices, EIA Administrator Guy Caruso said during a hearing by the House Government Reform's Subcommittee on Energy and Resources exploring Katrina's impact on gas prices and supply.

The Midwest "will probably suffer the largest increases" in natural gas prices. The degree of the price run-ups "will depend on the timing and pace of the recovery to the infrastructure and operations in the Gulf," he noted. But even if Gulf supply, transportation and processing operations are fully or nearly restored by December, he believes lofty prices for natural gas are likely to remain around for while.

"Fortunately for natural gas markets, we are in the shoulder season between the high demand for electric generation for air conditioning and high demand for heating, and storage is above the five-year average," he told the subcommittee, which is chaired by Rep. Darrell E. Issa (R-CA). But he said he expects the disruptions following Katrina to reduce the amount of natural gas that industry puts into storage over the remainder of the injection season.

Caruso said he was "concerned" that the damaged natural gas processing facilities in the Gulf may take several months to recover, and that this may handicap the industry's ability to put gas into storage for the winter months.

Although 56% of oil and 34% of natural gas production in the Gulf of Mexico still is shut in, Interior Department's Rebecca Watson reported that Gulf of Mexico production facilities that account for 90% of Gulf production escaped significant damage during Katrina. However, critical onshore support and infrastructure sustained "serious damage," said Watson, assistant secretary for Land and Minerals Management.

"The availability of these facilities will be a crucial factor in [the] recovery of the Gulf's production," she noted.

For Michael Zenker of Cambridge Energy Research Associates, Katrina "highlight[ed] the risk" of concentrating liquefied natural gas (LNG) terminals along the Gulf Coast. This could have a "disruptive effect on supply" in the future.

Rocky Mountain producers, who have the ability to drill new wells within days or weeks, "stand ready" to step up their output if given the right flexibility under the National Environmental Policy Act (NEPA), said Logan Magruder, president of the Independent Petroleum Association of Mountain States. "We do have the ability to deliver more natural gas."

He warned House lawmakers that "we're in for a pretty tight winter if we don't take action now."

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