State regulators and consumer advocates expressed deep concernover high gas prices last week at the winter committee meetings ofthe National Association of Regulatory Utility Commissioners inWashington, D.C. But industry officials said record drillingefforts will eventually solve the problem and already may be havingan impact.
“We’ve already seen the price of gas come down 50% at the HenryHub in the last three months,” noted Rhone Resch, director ofutility regulations for the Natural Gas Supply Association. “We’veseen prices fall 80% at the California border, so we may already beseeing a turn around.”
Resch, who joined a diverse collection of panelists to discussthe current market situation, noted that the rig count is up about125% compared to last year. “More importantly, new well completionswere up about 45% in 2000 over 1999,” he said. “That’s asubstantial increase, but I’d also like to point out that 1999 wasa very low year compared to 1998. However, if we continue to lookat how we’re drilling in the United States today with the number ofrigs that are out there we’re looking at an additional increase inthe year 2001 of about 25% growth in new natural gas wells. Thatwould put us at a record level for the last 15 years.”
Chris McGill of the American Gas Association said the new”pricing paradigm” for natural gas “at $3 or more” also willattract diverse new sources of supply “out of the woodwork, andthat’s not only domestic production but in Canada, the northerntier gas in Canada, some very creative ways to look at LNG,gas-to-liquids and many other potential opportunities for gassupply. What we can’t really predict is how they get to themarketplace and when they get to the marketplace and what thedemand pressures in the marketplace are.”
AGA is optimistic about supply, McGill said, “but I would echothe same things I have heard [from other speakers] that theAmerican public has to visit this issue of what we are going to dofor energy in the future. That does mean land access issues,attention paid to the environment; it does mean all the players inthis debate have to come to the table. We basically took a decadeoff and we have to come back to the table.”
Non-industry panelists painted a very bleak picture of thesituation. Akweli Parker, a business reporter at the PhiladelphiaInquirer, said he’d like to believe the optimism that increaseddrilling is going to have a downward effect on prices. “My questionis, are consumers going to be able to last during that lag time[between drilling and production]. I hear stories everyday frompeople who are paying $400 and $500 a month on their gas bill. Theyare not going to be able to take that for another year. I think aquestion you regulators might want to be asking yourselves is whatwe can do to help consumers in the meantime.”
Denise Goulet, a senior assistant consumer advocate at thePennsylvania Public Utility Commission said the industry andregulators bear responsibility for not educating consumers enough.”When we first went into this, seeing the prices rise throughoutthe summer of 2000, there was a perception among a number ofconsumer advocate offices that we were just seeing supply anddemand trying to balance out and the pricing was reflecting amarket that was working. However, I think that perception isbeginning to diminish somewhat among consumer advocate offices.Maybe there’s more at work here and maybe supply and demand aloneisn’t explaining what is happening with natural gas prices.
“While prices are down they are still more than twice what theywere just one year ago,” she noted.
David A. Pursell of Simmons and Company International admittedthere are significant reasons to continue to be concerned. Gasproduction was down 2% in 2000 and the lag time between drillingand production could mean a long wait, he noted. There also is abig concern that if demand is growing at “2-2.5% per year do wethink we can possibly grow supply organically at that level withoutopening up new bases for drilling or significant external supplieslike Alaska or LNG?”
Goulet said she wasn’t disagreeing with the contention thatthere is enough gas out there to be drilled. “I think the concernthat we have is at what price is it going to come to.” She notedthat the National Petroleum Council study predicted a 30 Tcf marketcould be served at gas prices averaging $2.75/Mcf through 2010.”That is not the price consumers are seeing on their bills today.”
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