Watching Government: Gas outlook

Aug. 7, 2000
Industry spokesmen are trying to remain optimistic, but the US appears headed for tighter natural gas supplies and much higher prices this winter.

Industry spokesmen are trying to remain optimistic, but the US appears headed for tighter natural gas supplies and much higher prices this winter.

Sen. Frank Murkowski (R-Alas.) recently held an energy and natural resources committee hearing on the outlook for US gas production.

Referring to the Clinton Administration's energy policies, Murkowski said, "We've put all our energy eggs in the natural gas basket, but we have not concentrated on producing more eggs."

The US Energy Information Administration predicts gas use will increase from 21 tcf/year now to nearly 30 tcf by 2015 and 32 tcf by 2020.

In the shorter term, Murkowski predicted a public outcry over natural gas prices this winter-greater than the one last winter in New England over home heating oil prices.

"This winter we will hear from consumers throughout the US, because natural gas is the number one heating fuel for more than half of all Americans."


In a statement to the committee, the American Petroleum Institute said natural gas interruptions this winter could spill over quickly into oil markets.

"Interruptible contract gas customers can generate a surge in distillate demand, directly competing with heating oil and trucking uses. Even without interruptions, high natural gas prices may encourage substitution of distillate in facilities with dual-fired capacity. Particularly if stocks of those oil products are also low, spikes in natural gas spot market prices can spread quickly to other markets.

"The prospects of continual tightness in oil markets through the year may leave the market vulnerable to a broad-based energy prices spike if an unusually warm summer prevents gas stocks from being delivered to winter storage, and severe winter weather results in interrupted or costly gas supplies.

"It is worth noting that the gas supply interruptions in New England that occurred last year occurred despite relatively high gas storage levels going into the winter season," API said.

Long term

Others warned that the US could face more gas supply shortfalls unless more federal lands are opened to exploration.

Michael Johnston, vice-president and general manager of Conoco Inc., testified for the Natural Gas Supply Association. He said, "America's richest natural gas resources-the resources we can produce most cost-effectively-lie under onshore and offshore federal lands."

Matthew Simmons, president of Simmons & Co. International, Houston, said producers may not be able to meet demand even if access and regulatory barriers are dropped.

G. Warfield Hobbs, of New Canaan, Conn., testified for the American Association of Petroleum Geologists.

He said the US has abundant gas resources, but without access to public lands, regulatory relief, and exploration tax incentives, the nation will face a serious supply shortage.

"Politicians must realize that kicking the petroleum industry in the shins and shaking fists at the Organization of Petroleum Exporting Countries makes for good press but is no solution to the pending natural gas supply crunch."