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Kelliher Cautions: 'We Can't Use Gas for Everything'

June 16, 2008
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FERC Chairman Joseph Kelliher said he believes that significantly expanding the use of natural gas to other markets, such as the transportation sector, would put even more upward pressure on what already are the highest sustained gas prices ever.

To fuel natural gas-powered cars, "we don't quite have the infrastructure in terms of the stations yet, but my concern is we can't use gas for everything," he said during CNBC's "Squawk on the Street" segment last Monday.

"Right now, because of uncertainty in climate change policy, we, through decision or indecision, have committed, subconsciously perhaps, to using natural gas to supply most of our additional electricity supply for the next 10 years or longer. And I think if we use gas for everything, there already is very strong upward pressure on natural gas prices..., we're going to assure high prices continue for a long time," Kelliher noted.

Front-month natural gas prices currently are $12.69/Mcf early Friday, up from $7.918/Mcf a year ago.

On the electric side, Kelliher said the utilities nationwide are in "pretty good shape" entering the summer, but he said the big question will be the heat. "How hot will the summer be? If you remember 2006, that summer we set record levels of electricity demand in eight regions of the country. In some regions we shattered the record three times in the space of a week. So will this be like the summer of 2006 or the summer of 2007? 2007 was a more moderate summer. That's the big variable."

He also said the transmission grid is in "better shape" than it was in 2003, when a major blackout struck parts of the East Coast and Midwest. "We've pursued policies at FERC to encourage greater investment in the grid. And I'm happy to say that investment in the grid is roughly double since 2002. But I don't think we're investing enough yet in the grid."

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