Outside factors, led by the scrutiny of the credit ratings agencies, could become the biggest deterrent to building new infrastructure, according to energy executives speaking at the GasMart/Power 2002 conference in Reno last Wednesday. Bill Hobbs, CEO of Williams Energy Marketing & Trading, said that while the “Enron hype is gone,” the $15 billion worth of capital cuts made by companies in the past few months “will have a significant impact” in the next five years.

Hobbs, joined by Richard Thatcher, former vice president of Dominion, told the audience that capital constraints at companies working to shore up their balance sheets will lead to a “serious issue facing our country,” because the pipelines and plants that need to be built will not be ready when they are needed in the next decade.

“At Williams, our 2002-2003 capital budget has been cut back to maintenance only,” Hobbs said, noting that his company, like many of its peers, is attempting to meet the requirements of credit ratings agencies and educate them in understanding how energy companies work. What that means for the short term for Williams and others is that project financing has been substantially cut back across the board.

While he noted that it was important for companies to get “back to basics,” Hobbs warned against rating agencies, regulators and politicians pushing their agendas to the extreme. “The only thing we can do is educate the ratings agencies and the politicians,” and hope that in the next “60 to 90 days, the ratings agencies may reach a point of comfort.” In the next 14 years, companies will need to spend about $50 billion on capital expenditures in North America, Hobbs said. However, unless companies can secure capital to build, it will become “a very dangerous thing,” he said.

Price-wise, Hobbs predicted that natural gas would remain the fuel of choice as long as it stays below $3.50. “Above that price, it puts more types of fuel in play.” He also foresees the short-term gas production to come from the Rocky Mountain and deep Gulf of Mexico regions. While he believes that the North Slope eventually will be developed, he said, “we’ve got to be realistic about it. In a $3 gas market, it’s a long-term strategy.” Also, the recent mild winter has “given a sense of comfort to a lot of people” but he added, “that’s a big mistake.”

Thatcher, who recently retired from Dominion, predicted that the problems in the gas market will “ultimately self correct and lead to a powerful natural gas bull market.” Until last year, gas prices generally fell in the $2-$2.50 range, but he said that the “new paradigm” in pricing has led to a belief that gas prices will fall in the $3.10-$3.60 range.

To meet the growing natural gas market, especially along the Eastern Seaboard, Thatcher suggested that the “basic answer is to build more storage.” However, agreeing with Hobbs, Thatcher said to build infrastructure, companies will need capital. “The strong companies will get stronger” in the meantime, he said.

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