Senate Assured Gas Supplies Are Adequate for Winter

Although natural gas stocks are below the five-year average, Energy Information Administration (EIA) and industry officials told a Senate committee yesterday that the nation was not facing a supply crisis of a magnitude that could leave some customers without gas this winter.

Although gas customers will be "unhappy" with the prices they will have to pay, "we expect that this heating season residential customers, firm commercial [and] firm industrial customers will get the gas that they demand," said EIA Acting Administrator Dr. Mark Mazur during a Senate Energy and Natural Resources Committee oversight hearing into escalating gas prices Tuesday.

He anticipates, however, that gas inventories will be "well below normal" at the end of this winter, which will help to keep wellhead gas prices propped up --- above the $4/Mcf mark --- for the next 18 months to two years. The EIA has projected that wellhead prices will average about $5.60/Mcf this winter, but Mazur said the price could be pushed even higher due to low storage levels. He believes it will be six to 18 months before new gas production comes on line, easing the supply situation.

Roger Cooper, executive vice president for policy and planning at the American Gas Association (AGA), said AGA member utilities have "put together a portfolio of gas that will enable [them] to meet firm requirements in even the most extreme weather conditions" during the winter months ahead.

"...[W]e will supply our firm residential and commercial customers when they want gas and [with] as much gas as they demand," he noted. However, "gas available to interruptible customers...may be less this year."

Cooper believes the weekly storage figures released by the AGA, which currently show current gas stocks running about 9-10% behind the five-year average, can be "over-emphasized" by industry.

Despite the present deficit, "and this is an important point, we had more gas in storage at the beginning of this winter heating season than we've ever used in the past," he told the Senate panel. "At the start of the drawdown season on Nov. 10, our storage was over 2.7 Tcf. The average withdrawal over the past five years have averaged about 2 Tcf, and the peak withdrawals over a winter heating season was in '95-'96 at 2.4 Tcf." In addition, the eastern consuming region, which is considered a "critical" region for storage, was 92% full at the start of the heating season, Cooper said.

But he agrees that high gas prices are a foregone conclusion for gas utility customers this winter. "We do not expect any significant price relief" this season due largely to the "significant lag" associated with gas production.

But while spot gas prices have risen 400% over last year, Cooper estimated residential customers will see a more modest 50% increase due to the fact that about 78% of the gas purchased by utilities is under long- and medium-term (two to 12 months) contracts. Only about 9% of utility gas is purchased on the spot market, he noted. "So the effect of these higher prices [is] not immediately felt by consumers." The EIA projects residential customers will pay $9.20/Mcf this winter, up 40% over a year ago.

Sen. Jeff Bingaman (D-NM), the ranking member of the committee, raised the prospect of the state or federal governments providing incentives to encourage the gas industry to buy more gas under long- and medium-term contracts.

"After this year, I think people are going to start relying on longer intermediate contracts," especially industrial and utility customers, responded John Sharp, vice president of the Natural Gas Supply Association (NGSA), which represents major gas producers.

Bingaman also wanted to know what action the government could take to promote the buildup in inventories of gas and other energy sources. Deborah Schachter, director of the Governor's Office of Energy and Community Services in New Hampshire, noted that Massachusetts appropriated $500 million this year to assure an incremental increase in storage of heating oil supplies.

She further suggested a change in the just-in-time inventory practices of the gas and heating oil industries because they "make us very vulnerable to price spikes and supply disruptions."

Bingaman further asked the EIA's Mazur what impact new gas-fired generation would have on gas availability. "Who is going to be standing at the back of the line not able to get their gas" due to the high gas demand of generators?

While the EIA projects that 90% or more of the new generation facilities brought on line over the next two decades will be fueled by natural gas, it believes that sufficient gas resources can be "economically developed" to meet the needs of all gas customers, Mazur told the senator.

Committee Chairman Frank Murkowski (R-AK) chided the EIA for missing the mark on the severity of the gas price increases this year. In its Short-Term Energy Outlook for December, he noted the agency projected with a "95% confidence level" that spot gas prices would peak at $6.50, but "we have far surpassed" that level.

Mazur noted the price was a monthly average price. Furthermore, he said the EIA predicted last summer --- when it noticed less gas being injected into storage --- that there would be an upswing in winter gas prices. While the agency didn't get the "magnitude" of the price spike correct, it "had the direction right."

Sen. Pete V. Domenici (R-NM) believes the spike in gas prices was to be expected because of the energy consuming public's heavy reliance on the fuel. "When you don't want to use anything else...you cause this," he noted. "The demands [on natural gas] are so severe, so big that you're going to have spikes that are inordinate." These energy problems, although they have been years in the making, "will land on the next administration."

Sen. Conrad Burns (R-MT) doesn't think there's an energy crisis at all. The problem is that the Department of Energy and the Department of Interior don't talk to each other, he believes. The agencies are running in "four or five directions" on energy policy, rather than ending "all these turf wars."

But New Hampshire's Schachter, who represents the National Association of State Energy Officials (NASEO), is convinced that an energy crisis exists. Also, she said, "We can't speak of natural gas markets in isolation. These markets are even more closely linked to both heating oil and electricity markets."

Her state, which is heavily dependent on heating oil, is facing a 60% surge in emergency requests for help from the low-income heating energy assistance program (LIHEAP) this year.

For this reason, Schachter requested that Congress increase the current $1.1 billion funding for LIHEAP to $1.65 billion, and consider raising it to the fiscal 1995 level of $2.1 billion. In addition, "we really...need action this week to release the remaining roughly $155 million in LIHEAP contingency funds."

It's time that Congress put a "human face" on this problem, she told Murkowski and other committee members.

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