Skyrocketing natural gas prices and the resulting energy crisis demand immediate legislative action, according to the Industrial Energy Consumers of America (IECA), a non-profit association of major industrial firms with at least 31 supporting members including Alcoa, Bayer, Dow Chemical, the Steel Manufacturers Association and others.

The IECA sent letters to Congress, the Bush administration and state governors last week urging them to take action to stem high gas costs by passing legislation that increases natural gas supply and reduces gas consumption.

High gas prices are having a devastating impact on manufacturing competitiveness and jobs and provide a clear indication that legislation needs to be passed, they said in their letter, which was sent to Reps. Billy Tauzin and John Dingell, and Sens. Pete Domenici and Jeff Bingaman and other congressmen. Gas production “has been stagnant since 1995 even though we have an abundant resource base and prices that are double their historical base.”

They said two million jobs have been lost in manufacturing since 1998 and energy costs were a large part of the reason. “It is vital that Congress act quickly to stem the national energy crisis by enacting legislation that provides a robust, diverse and affordable supply of energy,” IECA said. “It is particularly critical that Congress and the states act to increase supply of natural gas, and address regulations, such as New Source Review, in a manner that makes it easier for power generators to meet air quality standards without switching from coal to natural gas. Congress must also expedite commercialization of clean coal technology, the ultimate solution for power generation using coal in an environmentally acceptable manner.”

Overall, industrials are the largest consumer segment for natural gas in the U.S, using about 10 Tcf a year. A recent report by the research firm Energy and Environmental Analysis, based in Arlington, VA, said 50% of that load could be lost through fuel switching or plant shut-downs if natural gas prices remain high (see NGI, Jan. 20).

The IECA noted that gas production has fallen in the last three consecutive quarters and gas prices have rocketed past $5/MMBtu at the Henry Hub. Meanwhile, comparable gas prices in Europe, Brazil and China are less than in the United States, IECA said. “Industrial energy consumers, already weakened by a fragile economy, are threatened with further loss of global competitiveness, placing good jobs at risk. Leadership is needed by the U.S. Congress and the states to put our country on the road to an affordable and reliable energy supply.”

The IECA said legislation is essential for a short-term economic rebound and future long-term growth. “We believe that all supply options should be on the table to contribute to a diverse and robust supply of energy.”

Some major impediments to a healthy supply-demand balance include pending federal and state legislation that increases demand for natural gas without access to additional supply, increasing exports to Mexico, possible natural gas price index manipulation in the United States and a lack of access to domestic gas reserves.

A big part of the problem has to do with the mature resource base, IECA said. The Energy Information Administration (EIA) reported that the half-life of natural gas wells in the lower 48 has fallen by 49% in only nine years and the rate is accelerating. Even though the 2000-2001 natural gas price spike prompted the rig count to triple, gas production barely rose, IECA noted. “This means they are drilling a lot of wells into reservoirs that are getting smaller and depleting faster.”

The IECA suggested that Congress examine reinstating the expired Section 29 tax credits, which had an important impact on increasing natural gas production from 1990 to 1999, according to a January 2002 EIA report. Companies who used Section 29 tax credits saw their natural gas production increase by 26% and those who did not use the tax credits showed a decrease of 14%.

“Every major energy crisis since 1973 was followed by an economic recession,” IECA said. “The recent energy crisis of 2000-2001 was no different. The link between affordable supplies of energy and our economic well-being is no coincidence. Industrial energy-consuming companies were devastated by high energy costs that resulted in plant closures, plant idling, worker layoffs, and the transfer of production to offshore facilities. This same story is being repeated again, only from a lower number of manufacturing plants and jobs that may never return.”

IECA Executive Director Paul Cicio said the group intends to testify at upcoming congressional hearings on energy. He added that IECA is the only national trade association with a complete focus on energy and energy-related environmental issues. It also is the only national association whose members are exclusively major natural gas consumers.

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