Industrial endusers of natural gas have much to fret about in a world of rapidly escalating commodity prices, but the smart ones know that they can take measures to exert at least some control over their destinies.

Speaking at GasMart 2008 in Chicago, Guy Ausmus, ArcelorMittal USA Inc.'s manager of base metals and energy, said, "Let's face it; it's all about the hedge. If you don't have risk characterized correctly, you don't have proper procedures in place, if you don't get that hedge on, all is lost. You can't make it up on little incremental savings on your pipeline transportation contracts, your balancing contracts. It's all about the hedge."

Ausmus was one member of a panel of industrial natural gas endusers speaking at GasMart last Thursday. Besides the world's largest steel producer, ArcelorMittal, also represented were aluminum producer Alcoa Inc., pharmaceuticals company Abbott, gypsum producer USG Corp. and PotashCorp. The panel was moderated by Bill Griffith, vice president of marketing and origination for BP Gas & Power.

ArcelorMittal is served by 20 pipelines and 14 utilities in the United States, Ausmus said. Alcoa consumes 52 Bcf/year of gas in North America at 45 locations in 26 states and provinces and receives gas via 15 pipelines and 27 local distribution companies. USG consumes 37 Bcf/year, owns two interstate and six intrastate pipelines and moves gas on 25 pipelines.

High prices for natural gas and other commodities can be the bane of industrials, but it's important to note that the prices of some of their own products are rising as well, notably steel and aluminum. "Cheaper always makes me look better to my boss, but on a spread basis we're OK," Ausmus said of his commodity procurement activities. PotashCorp's Audrea Hill, senior director, noted that the company's risk resides in the spread between the price of natural gas and the price of ammonia.

In times of high commodity prices it's even more important for industrial consumers to stick together through participation in trade associations and enduser groups, said USG's Robert Cooper, director of energy. It's also important to work with suppliers, pipelines and local distribution companies on prices and tariffs. "Instead of making a bunch of lawyers a lot of money, we go in and work with the utility for a win-win," Cooper said.

Another means endusers have to fight back against high commodity prices is conservation, Ausmus said. A successful program that encourages conservation and efficiency can pay lasting dividends to an industrial consumer, particularly if natural gas prices remain high, as Ausmus expects. "My market view is this thing still has legs," he said. "I think it's young and we've got a long ways [for prices] to go."

Things wouldn't be so costly on the energy commodity front if the federal government would open the East and West coasts to oil and gas leasing, said Al Musur, Abbott's director of global energy management. "There are so many rules about what you can't do with natural gas it's insane," he said. Further, the policy of promoting the use of corn ethanol is driving up the cost of natural gas and of food. "Even cavemen knew that it is a bad idea to burn your food for fuel."

Alcoa's David Ciarlone, manager of energy services, called for more flexibility in pipeline capacity release rules, particularly in an era when the Federal Energy Regulatory Commission is able to levy hefty fines for infractions.

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