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Large Industrial Customers React to Gas Prices by Hedging, Conserving

The industrial sector of the U. S. economy is responding to historically high natural gas prices by doing more hedging, stepping up conservation efforts, turning to alternative energy and generally "playing at the margin," said a representative for large industrial customers at the LDC Forum in Los Angeles Wednesday.

Industrials are being adversely impacted but are trying to "hang on" over the next two years until an influx of new gas supplies and infrastructure dampens prices and volatility, said Alex Strawn, senior purchasing manager for North American energy at Proctor & Gamble and chairman of the national Process Gas Consumers Group (PGC).

"Volatility causes us the most immediate concern right now, but the overall prices, where they are right now, are a close second in concern," he said. "Outside of the industrial sector there seems to be a complacency about energy prices with people thinking they are really not having an impact. But they are; there are people having to layoff employees. We're surviving, but the key message is we can't continue to pass the higher gas costs through without raising prices for cars, bags of fertilizer and other energy-dependent products.

"Contrary to popular belief, we in the industrial community years before even the energy crisis of 2000-2001 were using financial and physical hedges, but it is hard to keep convincing people in the board room that you need to keep buying gas three to five years out into the future."

Strawn said industrial customers have gotten the natural gas industry's price signals "loud and clear," but the question is what do the respective sectors do about it. He contends the industrials are doing what they can for now by hedging and pushing conservation, so it is up to the energy sector to do their part in terms of producing new supplies and infrastructure to help bring supply and demand back into more stable balance.

"On the production side, you guys got the signal -- $15/MMBtu; let's drill, okay," said Strawn during a gas buyers' panel. "Let's produce; give us the gas we need."

He said that industrials "are doing things" and conservation is being seriously implemented. And at P&G and other companies in his major gas buyers' group, alternative energy sources are being more seriously considered, Strawn said.

"We see the signals, and there is a call to action within the industrial community," he said. "This is not a subject we take lightly. We're getting the message [high prices and volatility are here for the foreseeable future], we're taking action, and we want to get to the end of the road [with the producers/suppliers] so we can all celebrate together."

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