Gas prices evoke reregulation fears

High natural gas prices this winter could spawn a renewed call from federal regulators or Congress for price controls or even a windfall profits taxes�measures that would only exacerbate a bad situation, some participants warned Wednesday at the Governors Natural Gas Summit sponsored by the Interstate Oil & Gas Compact Commission (IOGCC) in Columbus, Ohio.


Ann de Rouffignac
OGJ Online

COLUMBUS, OHIO�High natural gas prices this winter could spawn a renewed call from federal regulators or Congress for price controls or even a windfall profits taxes�measures that would only exacerbate a bad situation, some participants warned Wednesday at the Governors Natural Gas Summit sponsored by the Interstate Oil & Gas Compact Commission (IOGCC).

Yet today's market represents a crisis of prices not shortages, participants said. The market is working, and natural gas producers are responding to the higher prices by beefing up drilling programs, they said. For the week ended Sept. 15, there were 816 natural gas rigs working in the US and Canada, up 8 over the previous week and up 246 over the same period a year ago.

�We are in control of the situation,� said Gov. Tony Knowles (D-Alas.). �We are not subject to a foreign cartel controlling supply and price.�

Gov. Bob Taft (R-Ohio) added that the worst thing that could happen now would be the institution of price controls. This could turn into a crisis if rigidities are introduced into the market.

But gas prices are expected to increase this winter in most of the northern consuming states. Residential gas customers can expect price hikes of 20-40%, and industrial users will be hit with 100% or higher jumps in their bills.

Peggy Claytor, energy purchasing manager for the Timken Co., said many industrial companies were caught off guard and did not hedge forward enough.

�I know companies that are only 25% hedged for the winter,� she said in an interview. �It�s going to mean a big impact to the bottom line for many.�

Michigan rate freeze
In Michigan another big consuming state, no shortages are expected. Moreover, residential consumers are protected by a rate freeze at least for this winter.

�We are not going to see any of this,� says Joel Sharkey, who serves on the staff of the Michigan Public Utilities Commission. �We are on track for storage for the winter. But the largest utility in the state is taking a big hit.�

Even though the supply is tight, the market is responding, and new resources are on the way, participants emphasized.

But they won�t be available in time for this winter.

Concern about high prices, especially the impact on fixed and low income consumers, was high on everyone�s agenda, since most natural gas distribution companies can pass through increases to consumers with state regulatory approval.

Keith Bailey, CEO of Williams, advocated permitting states to smooth the impact of rising prices on residential and small business consumers. On the other hand, �there shouldn�t be any bail out of sophisticated buyers who have all the options available to them,� Bailey said. �They should stand and fall with their decision.�

The market must be allowed to work even though it will be hard to sit by, he said.

�It�s easy to do in warm winters with lots of supplies,� says Bailey. �It�s a lot harder in times of tight supplies.�

The conference was called to explain the need for natural gas is only expected to keep growing because of the demand from gas-fired power plants. Most participants agreed demand for gas will reach 30 tcf by the end of the decade.

"It would be a shame if the winter were to lessen the emphasis on natural gas now,� says Daniel Yergin, chairman, Cambridge Energy Research Associates.

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