The natural gas industry should be prepared to face customerrevolts and attempts at price caps, similar to those witnessed thissummer in San Diego if it’s a cold winter and prices continue tohit new highs. That was the warning from government and industryrepresentatives at the crisis conference held by the Interstate Oil& Gas Compact Commission (IOGCC) yesterday.
Representatives of producing states and industry speakers wereunanimous in opposing government intervention to restrain prices,but no one had a ready remedy for consumer reaction if they are hitwith a double whammy of greater energy use at higher prices thiswinter. One speaker offered a bright spot: the industry mightemerge relatively unscathed if the winter is moderate. But then headded it’s not just residential heating bills, but electric billsas well that will be impacted by higher natural gas prices. Otherspointed out that demand and higher prices could spur lawmakers toopen more areas to drilling and encourage new long lines.
“Industrial customers have been dealing with high prices forsome time, but higher bills for residential and small commercialcustomers are just starting to hit the radar screen,” PeggyClaytor, purchasing manager for steel-maker The Timken Co., toldthe group of more than 300 from the U.S., Canada and Mexico,meeting in Columbus, OH. “We may see protests or proposals or callsfor price caps this winter.” She said she is opposed to capsbecause they fail to solve the underlying problems, and she blamedthe “dysfunctional electricity grid” in part for aggravating therun-up in natural gas prices.
Asked whether he expected to see a public outcry fromresidentials this winter, Stephen L. Baum, chairman of SempraEnergy, whose San Diego Gas & Electric subsidiary has borne thebrunt of the California debacle (and whose prices were capped), hada one word answer: “Absolutely.”
Enron Chairman Ken Lay agreed. “If we have a combination of acold winter with high prices, it could send bills up quitesubstantially. Certainly, there could be some reaction.” Lay saidhe expected prices to be high for the short to medium term, comingdown over next two to three years. “As long as regulators leave italone, this market will come back into balance.” Lay pointed outthat even if prices to consumers hit $8.20/Mcf this winter, itwould be just equal to the price level, adjusted for inflation, in1986.
Even at today’s prices, “energy is the best buy there is,”Robert Allison, Jr., chairman of Anadarko Petroleum, told thegroup, pointing out how consumer prices for other basics such ashouses and cars, have increased over the past 15 years. The problemwith energy prices is they have stayed low for so long.
If the government wants to take action, it should open morepublic lands to drilling, Allison said, estimating there are 213Tcf of reserves— or a 10-year supply — that are off limits inthe lower 48 states. Only portions of the Gulf of Mexico andAlaska are effectively open for drilling. “It’s up to Congress toprovide greater access,” Allison said.
Others, including Alaska Gov. Tony Knowles, said governmentshould encourage the building of additional pipeline capacity,particularly a new pipeline from Alaska.
Leading off the “Governors’ Natural Gas Summit: Responding tothe Growing Energy Crisis,” Daniel Yergin, chairman of CambridgeEnergy Research Associates, called the current situation a “shock,”not a “crisis.” A lack of reserves would be a crisis, but there areplenty of reserves. It’s simply that demand has accelerated andbumped up against the “iron law of lead times.” He said theindustry would have to invest more than $500 billion over the nextten years, nearly double the level of the 1990s, to keep up withnew markets.
Yergin called for the U.S. to coordinate supply developmentpolicy with Mexico and Canada. “This is not just a U.S. issue. Andthere will not be just U.S. solutions — there must be acontinent-wide response.”
In the meantime, the industry should attempt to cushion theshort-term shock through consumer education, conservation and lowincome assistance programs.
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