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

While gas customers will be “unhappy” with the prices they willhave 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 last 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 enough newgas production comes on line to appreciably ease the supplysituation.

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. However, “gas available tointerruptible 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% behindthe five-year average, can be “over-emphasized” by industry,causing unwarranted alarm.

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 withdrawals 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.

He agrees that high gas prices are a foregone conclusion for gasutility customers this winter, but while spot gas prices have risen400% over last year, Cooper estimated residential customers willsee a less drastic 50% increase. This is because about 78% of thegas purchased by utilities is under long- and medium-term (two to12 months) contracts. Only about 9% of utility gas is purchased onthe spot market. EIA projects residential customers will pay$9.20/Mcf this winter, up 40% over a year ago. Gas bills for thetypical Midwest households will be 50% higher this winter,according to the agency.

Sen. Jeff Bingaman (D-NM), the ranking minority member on thecommittee, raised the prospect of the state and/or federalgovernments providing incentives to encourage the gas industry tobuy more gas under long- and medium-term contracts.

That might not be necessary. “After this year, I think peopleare 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).

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. Shefurther suggested a change in the just-in-time inventory practicesof the gas and heating oil industries because they “make us veryvulnerable 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” becauseof the gluttonous gas appetite of generators?

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 anything else.youcause this,” he noted. “The demands [on natural gas] are so severe,so big that you’re going to have spikes that are inordinate.” Theseenergy problems, although they have been years in the making, “willland on the next administration.”

Sen. Conrad Burns (R-MT) dismissed the notion that the nation isin the throes of an energy crisis. The problem is that theDepartment of Energy and the Department of Interior don’t talk toeach other, he said. The agencies are running in “four or fivedirections” on energy policy, rather than ending “all these turfwars.”

But New Hampshire’s Schachter, who represented the NationalAssociation of State Energy Officials (NASEO), is convinced thatthe energy crisis is real and broad-based. Her state, which isheavily dependent on heating oil, is facing a 60% surge inemergency requests for aid from the low-income heating energyassistance program (LIHEAP) this year. She urged Congress toincrease its current outlay of $1.1 billion for LIHEAP to $1.65billion, and further consider raising it to the fiscal 1995 levelof $2.1 billion. In addition, “we really.need action this week torelease the remaining roughly $155 million in LIHEAP contingencyfunds.”

Susan Parker

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