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Senate Assured Gas Supplies Are Ample for Winter

Senate Assured Gas Supplies Are Ample for Winter

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

While 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 last 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 enough new gas production comes on line to appreciably ease 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. 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, causing unwarranted alarm.

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 withdrawals 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.

He agrees that high gas prices are a foregone conclusion for gas utility customers this winter, but while spot gas prices have risen 400% over last year, Cooper estimated residential customers will see a less drastic 50% increase. This is because 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. EIA projects residential customers will pay $9.20/Mcf this winter, up 40% over a year ago. Gas bills for the typical Midwest households will be 50% higher this winter, according to the agency.

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

That might not be necessary. "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).

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" because of the gluttonous gas appetite of generators?

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 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) dismissed the notion that the nation is in the throes of an energy crisis. The problem is that the Department of Energy and the Department of Interior don't talk to each other, he said. 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 represented the National Association of State Energy Officials (NASEO), is convinced that the energy crisis is real and broad-based. Her state, which is heavily dependent on heating oil, is facing a 60% surge in emergency requests for aid from the low-income heating energy assistance program (LIHEAP) this year. She urged Congress to increase its current outlay of $1.1 billion for LIHEAP to $1.65 billion, and further 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."

Susan Parker

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