US natural gas spot prices, which have recently risen past $9/Mcf on the New York Mercantile Exchange, are unlikely to fall significantly in the short term.
That was the prevailing view in testimony by natural gas industry representatives and a US Department of Energy official last week at a US Senate energy committee hearing.
AGA view
"For this winter, our options are limited," said Roger B. Cooper, executive vice-president for policy and planning of the American Gas Association. "The market is temporarily out of balance."
Cooper pointed to a decline in US production beginning in 1998, when natural gas wellhead prices fell below $2/Mcf for extended periods, leading producers to cut drilling activity almost in half. The count of rigs drilling for natural gas fell to 300-400 in 1998 from around 600, and while it had rebounded to 810 by last September, "significant price relief is not expected this winter because of the 12-18 month time lag between drilling and delivery," Cooper said.
Prices will stay high because of the current production slump, combined with an upswing in demand, due to a booming economy; unusually cold weather thus far in the winter season; and strong demand for gas from electricity generation plants, he explained.
Cooper stated that the natural gas utilities in his association would continue to fully supply all firm contracts, but that some customers paying a lower price for interruptible service may see supplies curtailed. He predicted that prices would gradually decline in coming months but would not return to prespike low prices.
Mark Mazur, acting administrator of the US Energy Information Administra- tion, agreed with Cooper's assessment of natural gas prices, saying EIA expects an average price of $5.60/Mcf during the October-March heating season months.
Wellhead gas prices are not expected to fall below an average $4/Mcf in 2001, he said, although, according to EIA projections, they will slowly decline to $3.13/Mcf by 2020, in 1999 dollars.
Mazur noted the price situation is particularly critical in California, where gas prices have risen to more than four times the national average at times.
He attributed this to unusually high demand by gas-fired power plants and for heating, as well as low storage levels and low hydroelectric and nuclear generation output. He also said supply to California is being strained by the below-normal flow level of El Paso Natural Gas Co.'s pipeline system, as it recovers from its Aug. 19 rupture in New Mexico, and by a lack of available capacity in other supply systems.
Federal lands access
For John Sharp, vice-president and counsel for the Natural Gas Supply Association, the long-term solution to high natural gas prices is for the government to allow producers further access to federal lands.
"If producers are to bring significantly increased supplies of natural gas to market at prices competitive with other fuels, we will need access to resources under government lands-resources where production is currently prohibited by a variety of federal moratoriums and regulatory restrictions," Sharp commented.
Pointing to improved, environmentally friendly production techniques, Sharp said: "It does not make economic or environmental sense to deny producers access to federal lands."
According to EIA estimates, some 551 tcf of untapped natural gas reserves underlie federal lands, of which about 215 tcf is unavailable due to moratoriums and restrictions.
Energy committee Chairman Sen. Frank Murkowski (R-Alas.) echoed the call for expanding access to federal lands, expediting pipeline permits, and development of a proposed Alaska gas pipeline project.
"We are drawing down reserves faster than we are replacing them with discoveries," Murkowski said.
Deborah Schachter, representing the National Association of State Energy Officials, urged the committee to increase funding for the Low Income Home Energy Assistance Program, which helps lower-income US residents pay their heating bills. Schachter called for an increase to $2.1 billion from the currently budgeted $1.4 billion.
