Senate Assured Gas Supplies Are Ample for Winter
Although natural gas stocks are below the five-year average,
Energy Information Administration (EIA) and industry officials told
a Senate committee last week that the nation was not facing a
supply crisis of a magnitude that could leave some customers
without gas this winter.
While gas customers will be "unhappy" with the prices they will
have to pay, "we expect that this heating season residential
customers, firm commercial [and] firm industrial customers will get
the gas that they demand," said EIA Acting Administrator Dr. Mark
Mazur during a Senate Energy and Natural Resources Committee
oversight hearing into escalating gas prices last Tuesday.
He anticipates, however, that gas inventories will be "well
below normal" at the end of this winter, which will help to keep
wellhead gas prices propped up --- above the $4/Mcf mark --- for
the next 18 months to two years. The EIA has projected that
wellhead prices will average about $5.60/Mcf this winter, but Mazur
said the price could be pushed even higher due to low storage
levels. He believes it will be six-to-18 months before enough new
gas production comes on line to appreciably ease the supply
Roger Cooper, executive vice president for policy and planning
at the American Gas Association (AGA), said AGA-member utilities
have "put together a portfolio of gas that will enable [them] to
meet firm requirements in even the most extreme weather conditions"
during the winter months ahead. However, "gas available to
interruptible customers.may be less this year."
Cooper believes the weekly storage figures released by the AGA,
which currently show current gas stocks running about 9-10% behind
the five-year average, can be "over-emphasized" by industry,
causing unwarranted alarm.
Despite the present deficit, "and this is an important point, we
had more gas in storage at the beginning of this winter heating
season than we've ever used in the past," he told the Senate panel.
"At the start of the drawdown season on Nov. 10, our storage was
over 2.7 Tcf. The average withdrawals over the past five years have
averaged about 2 Tcf, and the peak withdrawals over a winter
heating season was in '95-'96 at 2.4 Tcf." In addition, the eastern
consuming region, which is considered a "critical" region for
storage, was 92% full at the start of the heating season, Cooper
He agrees that high gas prices are a foregone conclusion for gas
utility customers this winter, but while spot gas prices have risen
400% over last year, Cooper estimated residential customers will
see a less drastic 50% increase. This is because about 78% of the
gas purchased by utilities is under long- and medium-term (two to
12 months) contracts. Only about 9% of utility gas is purchased on
the spot market. EIA projects residential customers will pay
$9.20/Mcf this winter, up 40% over a year ago. Gas bills for the
typical Midwest households will be 50% higher this winter,
according to the agency.
Sen. Jeff Bingaman (D-NM), the ranking minority member on the
committee, raised the prospect of the state and/or federal
governments providing incentives to encourage the gas industry to
buy more gas under long- and medium-term contracts.
That might not be necessary. "After this year, I think people
are going to start relying on longer intermediate contracts,"
especially industrial and utility customers, responded John Sharp,
vice president of the Natural Gas Supply Association (NGSA).
Bingaman also wanted to know what action the government could
take to promote the buildup in inventories of gas and other energy
sources. Deborah Schachter, director of the Governor's Office of
Energy and Community Services in New Hampshire, noted that
Massachusetts appropriated $500 million this year to assure an
incremental increase in storage of heating oil supplies. She
further suggested a change in the just-in-time inventory practices
of the gas and heating oil industries because they "make us very
vulnerable to price spikes and supply disruptions."
Bingaman further asked the EIA's Mazur what impact new gas-fired
generation would have on gas availability. "Who is going to be
standing at the back of the line not able to get their gas" because
of the gluttonous gas appetite of generators?
Sen. Pete V. Domenici (R-NM) believes the spike in gas prices
was to be expected because of the energy consuming public's heavy
reliance on the fuel. "When you don't want to use anything else.you
cause this," he noted. "The demands [on natural gas] are so severe,
so big that you're going to have spikes that are inordinate." These
energy problems, although they have been years in the making, "will
land on the next administration."
Sen. Conrad Burns (R-MT) dismissed the notion that the nation is
in the throes of an energy crisis. The problem is that the
Department of Energy and the Department of Interior don't talk to
each other, he said. The agencies are running in "four or five
directions" on energy policy, rather than ending "all these turf
But New Hampshire's Schachter, who represented the National
Association of State Energy Officials (NASEO), is convinced that
the energy crisis is real and broad-based. Her state, which is
heavily dependent on heating oil, is facing a 60% surge in
emergency requests for aid from the low-income heating energy
assistance program (LIHEAP) this year. She urged Congress to
increase its current outlay of $1.1 billion for LIHEAP to $1.65
billion, and further consider raising it to the fiscal 1995 level
of $2.1 billion. In addition, "we really.need action this week to
release the remaining roughly $155 million in LIHEAP contingency