Although natural gas stocks are below the five-year average,Energy Information Administration (EIA) and industry officials tolda Senate committee yesterday that the nation was not facing asupply crisis of a magnitude that could leave some customerswithout gas this winter.

Although gas customers will be “unhappy” with the prices theywill have to pay, “we expect that this heating season residentialcustomers, firm commercial [and] firm industrial customers will getthe gas that they demand,” said EIA Acting Administrator Dr. MarkMazur during a Senate Energy and Natural Resources Committeeoversight hearing into escalating gas prices Tuesday.

He anticipates, however, that gas inventories will be “wellbelow normal” at the end of this winter, which will help to keepwellhead gas prices propped up — above the $4/Mcf mark — forthe next 18 months to two years. The EIA has projected thatwellhead prices will average about $5.60/Mcf this winter, but Mazursaid the price could be pushed even higher due to low storagelevels. He believes it will be six to 18 months before new gasproduction comes on line, easing the supply situation.

Roger Cooper, executive vice president for policy and planningat the American Gas Association (AGA), said AGA member utilitieshave “put together a portfolio of gas that will enable [them] tomeet firm requirements in even the most extreme weather conditions”during the winter months ahead.

“…[W]e will supply our firm residential and commercialcustomers when they want gas and [with] as much gas as theydemand,” he noted. However, “gas available to interruptiblecustomers…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% behindthe five-year average, can be “over-emphasized” by industry.

Despite the present deficit, “and this is an important point, wehad more gas in storage at the beginning of this winter heatingseason 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 wasover 2.7 Tcf. The average withdrawal over the past five years haveaveraged about 2 Tcf, and the peak withdrawals over a winterheating season was in ’95-’96 at 2.4 Tcf.” In addition, the easternconsuming region, which is considered a “critical” region forstorage, was 92% full at the start of the heating season, Coopersaid.

But he agrees that high gas prices are a foregone conclusion forgas utility customers this winter. “We do not expect anysignificant 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, Cooperestimated residential customers will see a more modest 50% increasedue to the fact that about 78% of the gas purchased by utilities isunder long- and medium-term (two to 12 months) contracts. Onlyabout 9% of utility gas is purchased on the spot market, he noted.”So the effect of these higher prices [is] not immediately felt byconsumers.” 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 providingincentives to encourage the gas industry to buy more gas underlong- and medium-term contracts.

“After this year, I think people are going to start relying onlonger intermediate contracts,” especially industrial and utilitycustomers, responded John Sharp, vice president of the Natural GasSupply Association (NGSA), which represents major gas producers.

Bingaman also wanted to know what action the government couldtake to promote the buildup in inventories of gas and other energysources. Deborah Schachter, director of the Governor’s Office ofEnergy and Community Services in New Hampshire, noted thatMassachusetts appropriated $500 million this year to assure anincremental increase in storage of heating oil supplies.

She further suggested a change in the just-in-time inventorypractices of the gas and heating oil industries because they “makeus very vulnerable to price spikes and supply disruptions.”

Bingaman further asked the EIA’s Mazur what impact new gas-firedgeneration would have on gas availability. “Who is going to bestanding at the back of the line not able to get their gas” due tothe high gas demand of generators?

While the EIA projects that 90% or more of the new generationfacilities brought on line over the next two decades will be fueledby 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 formissing the mark on the severity of the gas price increases thisyear. In its Short-Term Energy Outlook for December, he noted theagency projected with a “95% confidence level” that spot gas priceswould 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 gasbeing injected into storage — that there would be an upswing inwinter gas prices. While the agency didn’t get the “magnitude” ofthe price spike correct, it “had the direction right.”

Sen. Pete V. Domenici (R-NM) believes the spike in gas priceswas to be expected because of the energy consuming public’s heavyreliance on the fuel. “When you don’t want to use anythingelse…you cause this,” he noted. “The demands [on natural gas] areso severe, so big that you’re going to have spikes that areinordinate.” These energy problems, although they have been yearsin the making, “will land on the next administration.”

Sen. Conrad Burns (R-MT) doesn’t think there’s an energy crisisat all. The problem is that the Department of Energy and theDepartment of Interior don’t talk to each other, he believes. Theagencies 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 NationalAssociation of State Energy Officials (NASEO), is convinced that anenergy crisis exists. Also, she said, “We can’t speak of naturalgas markets in isolation. These markets are even more closelylinked to both heating oil and electricity markets.”

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

For this reason, Schachter requested that Congress increase thecurrent $1.1 billion funding for LIHEAP to $1.65 billion, andconsider raising it to the fiscal 1995 level of $2.1 billion. Inaddition, “we really…need action this week to release theremaining roughly $155 million in LIHEAP contingency funds.”

It’s time that Congress put a “human face” on this problem, shetold Murkowski and other committee members.

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