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CA Natural Gas Prices Center Stage; NAM Eyes Relief in Congress

With California policymakers and businesses uncertain what to do about record high natural gas prices, the National Association of Manufacturers (NAM) said it will seek relief from House Resources Committee Chairman Richard Pombo (R-CA) who is trying to get drilling reopened offshore California and in the eastern Gulf of Mexico, using the upcoming budget reconciliation bill process as a vehicle.

Following a conference call on Thursday, NAM President John Engler, the former Michigan governor, said the manufacturers strongly support Pombo's plan. Debate on the budget reconciliation bill will start this week.

NAM said the outer continental shelf has 420 Tcf of "technically recoverable resources" and 77 billion barrels of oil. "We are seeing first hand the impact of higher oil/natural gas prices, the vulnerability of our energy security, and the need for more and diverse supplies of energy," said Engler, while the nation actually has adequate oil and gas supplies if the OCS is opened up. "The proposed legislation will enable states to access them, if they desire, so jobs stay in America and consumers pay less to heat and cool their homes and drive their cars."

Engler said Pombo's proposal "strikes a necessary balance" -- opening some areas with much-needed energy production, while reinforcing "the rights of states who choose not to develop their offshore energy resources."

California's state administration and Democratic-controlled state legislature are adamantly against any drilling off the state's coast.

Meanwhile, a report to the California Independent System Operator's (CAISO's) oversight board last week said western gas supplies are still relatively unaffected by the supply shortage in the East and prices out West are still steeply discounted below Henry Hub price levels.

CAISO's report to its board indicated that despite the two big gas price spikes at Henry Hub following each major hurricane in late August and September ($12.70/MMBtu and $15.27/MMBtu, respectively), the West has fared relatively better with the Pacific Gas and Electric citygate price peaking at $11.97/MMBtu after the second big hurricane (Rita) on Sept. 29.

"In September, California wholesale natural gas buyers enjoyed a discount of $1.50 to more than $4/MMBtu below national Henry Hub prices, compared to a typical discount in the range of 25-50 cents/MMBtu," said the CAISO staff report, which concluded that futures prices for this winter have reached as high as $14/MMBtu.

CAISO noted that wholesale electricity costs have closely tracked the gyrations in the wholesale gas prices, with $9/MMBtu gas creating wholesale power prices in the range of $78 to $114/MWh. Thus, gas in the $12-$15/MMBtu range is bound to push wholesale electricity prices well above $120/MWh.

Ultimately, NAM member businesses, such as Ace Clearwater Enterprises in Southern California think they need help from Congress, and Engler strongly agrees, arguing that high energy prices have contributed to the loss of "millions of manufacturing jobs in recent years, including 100,000 jobs and $50 billion in business in the chemical industry alone."

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