R. Skip Horvath, president of the Natural Gas Supply Association (NGSA), said Wednesday that the “calm in today’s natural gas prices” is nothing more than “the low side of our normal business cycle,” with volatility normal and expected in a healthy, competitive market. Horvath, speaking at CERAWeek 2002 in Houston, said the market will continue to see swings, requiring producers to understand both the “depths and heights” to make proper investment decisions.

Two features of the production business cycle are important, he said. “First, since the early 1990s, each price increase and decrease has been a little higher than a previous cycle. Second, the high-low price spread has increased. Neither of these two trends will necessarily continue, but both underscore the underlying volatility.”

Volatility, said Horvath, is actually simple — “we are a commodity market and volatility is inherent in competitive commodities.” However, he added that the long-term reason for the swings is more fundamental because it is based on supply. “The fields where we drill are old, yielding less and less natural gas. Today, we have to produce 6 Tcf per year of new natural gas supply just to stay even, much less the amount required to meet growing demand. We can produce the natural gas required to meet market demands, but we must have changes in government policy to plan for the future.”

Echoing other speakers who called for a renewed effort to pass a National Energy Policy, Horvath said, “Our industry cannot move on a dime. Producing natural gas takes time, even years when we are not using existing wells.” He said to meet future market demand, “we must have improved government permitting in gas-prone government lands to ensure the most economic supply.”

Horvath also said U.S. producers “must be allowed to explore for new fields of natural gas in areas where we currently are restricted. It may sound simple, but these two issues are our industry’s biggest challenges.”

Noting that there was “plenty” of natural gas in the ground, Horvath said there also are “plenty of tools to manage business during a volatile market.” He said the natural gas industry now has a competitive production market that works. “What we do not have is public policy for long-term supply of this fuel, and that is key to expected future growth in the natural gas market.”

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