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Chemical Industry Wants Navy, Coast Guard, Army Corp to Help Restore Processing, Supply

The American Chemistry Council (ACC) called on Congress Friday to rush the "amphibious resources" of the Navy, Coast Guard and Army Corp of Engineers to southern Louisiana to help rebuild levies and get eight shut-down gas processing plants back into operation. That was just one of several actions, the ACC recommended to alleviate the natural gas supply problem and high gas prices, as two major chemical manufacturers raised the prices of their products.

"It's becoming clearer and clearer that unless decisive actions are taken this fall to curb natural gas demand and increase supplies, Americans could be in for a difficult winter," the ACC said in a statement. "The potential for shortages and even higher prices is great, affecting Americans directly in the form of higher home heating costs and indirectly as they pay more for the many consumer goods produced using natural gas. Congress and the administration should act now to prevent a supply shock this winter."

The ACC, which represents the nation's chemical industry, also urged Congress to take the following additional steps:

The group cited comments by U.S. Secretary of Energy Samuel Bodman who said this week there is "great concern about natural gas" supply, including possible shortages this winter, as a result of Hurricane Katrina's damage to the natural gas supply system. Senator Pete Domenici also warned of "real hardships" this winter for low-income families.

Gas production shut-ins in the Gulf were still at 3.38 Bcf/d on Friday, or 34% of the Gulf's total gas production. About 84 platforms and two rigs remain evacuated. Eight processing plants totaling more than 6.5 Bcf/d of processing capacity are out of service, some possibly for months. The Southern Natural and Tennessee Gas pipelines and compressor stations suffered damage and it is not know how long it will take to repair them. Forty six producing facilities were destroyed and 20 more were extensively damaged by the storm, the MMS said. Four rigs also were destroyed and nine others were damaged.

Dow Chemical CEO Andrew Liveris warned the situation poses a severe threat to the long-term health of the chemical industry in the United States. "For two and a half years or more our industry has done all that it can to mitigate the impact of escalating feedstock and energy costs, which have been particularly severe in relation to U.S. natural gas," said Liveris. "We've been sharply focused on reducing operating expenses, improving energy efficiency, increasing productivity and generally controlling those things we are able to control in an effort to address this unprecedented challenge.

"But right now, with oil and natural gas prices at astronomically high levels and showing no signs of receding, the U.S. chemical industry faces the very real risk of being unable to invest in its own future in this country."

Liveris said Dow will be seeking price increases across its entire portfolio of chemical and plastic products as a result of the energy price situation. "At Dow, much has been done -- and will continue to be done -- to manage our own cost structure and to offset the impact of ever-higher energy and feedstock costs. At this point, however, we have no choice but to ask our customers to pay more for our products in order to safeguard their supplies into the future."

DuPont also announced its intention to raise prices for all products in light of rapidly increasing costs for energy and feedstocks. "We are facing the unfortunate reality that the world has truly changed and energy prices are not receding, nor do we see signs of lower energy costs in the near future," said Diane H. Gulyas, chief marketing and sales officer. "This supply shock has affected all of our operations and requires a comprehensive strategy that includes this price initiative coupled with our ongoing productivity improvements and energy conservation efforts."

Kevin Swift, chief economist at the ACC, said the chemical industry consumes about 2.3 Tcf of natural gas and 1.4 Tcf of natural gas liquids every year. "For every dollar increase in natural gas, it is costing us about $3.7 billion. Gas went from $6 to $12. That's close to $23 billion in costs and the industry only earned $26 billion last year," Swift told NGI. "This is a supply shock that results in few choices and higher prices." And, he said, many more companies will be going out of business or heading overseas to capture lower feedstock costs.

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