ERMUSR MISC. ITEMS 10-15-2003 - Laserfiche WebLink

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OPINION By BOB SMOCK, VICE PRESIDENT, GLOBAL ENERGY GROUP NATURAL GAS CRISIS REVISITED D id you follow the flurry of news reports in June about the U.S.Dept.of Energy Secretary Spencer Abraham wrote a let- natural gas crisis?Though the media has since moved on to ter to 30 senators in June calling for, among other steps, electri( newer crises,the underlying problems with gas supply and utilities to switch from natural gas to coal and other energy sources pricing remain.The situation suggests the following scenario: A House of Representatives energy and commerce committer The crisis gets worse. Natural gas prices continue to climb hearing on the issue on June 10 featured testimony from federaE into the winter heating season.Demand exceeds supply and short- reserve chairman Alan Greenspan, who concluded, "...the long- ages begin to occur.The winter is extra-cold and some homeown- term equilibrium price for natural gas in the United States ha: era can't get enough gas to heat their homes.The growing number risen persistently during the past six years from approximately$2 of gas-burning power plants is blamed. Congress.feeling the pres- per million Btu to more than $4.50. The perceived tightening of sure,passes a law.The president signs it.The law bans the use of long-term demand-supply balances is beginning to price somr gas fuel in new power plants and sets a deadline for phasing out industrial demand out of the market. It is not clear whether thest gas in existing plants. losses are temporary, pending a fall in price, or permanent: Sounds crazy? Could never happen? Well, it did happen. In Greenspan did not seem worried about a shortage of natural gas. the 1970s,this scenario unfolded and in 1978 Congress passed the noting that if the U.S.gas industry did not increase production suf- Power Plant and Industrial Fuel Use Act. PIFUA prohibited the ficiently, then imports would fill the gap, in the form of liquefied use of gas as a fuel in new power plants and required existing natural gas if necessary. House committee chairman Billy Tauzin. plants to stop using gas by 1990. R-La.,was quoted as saying,"We see a storm brewing on the hori- PIFUA was repealed in 1987-after the federal government zon.We need to prepare for it." stopped regulating the price of gas at the wellhead and supply By July the"crisis"eased.Large injections of gas into storage quickly grew to exceed demand - but the ban was in place for relieved fears of a shortage this winter.even though storage levels nine years. are still significantly below levels of a year ago. Spot prices fel. The current situation is eerily similar to what led up to back to the$5-6 range, down from the spring peaks but still well PIFUA, including the threat of Congressional action intended to above year-ago levels. protect voters with gas-heated homes. Power generators cannot afford to ignore this issue. The Prices are rising. Demand exceeds supply. Electric power underlying trends in the gas market remain: generation is at the heart of the issue. Over the past four years about 200,000 MW of new gas fired generating plants have been •Additional U.S.gas production or imports can meet demand. built,significantly increasing demand for gas and putting upward but at a much higher long-term price than in the past. pressure on prices.The build-out of gas plants is still underway,at • The tremendous increase in gas-fired electric power generat- a lower rate,but still adding to gas demand. ing capacity in the last The underlying problem is that U.S.gas production is declin- g p Y few years has et n the dominant mail ing while demand is rising. Production is less than consumption, cause of on the demand side of the market and is the main resulting in a drawdown of gas in storage.Talk of a crisis was trig- • cause of cu ent market strain. gered by the abnormally low levels of gas in storage this spring, The U.S. has not had an extremely cold winter or a series o> bottoming at the lowest level since storage amounts started being extremely cold winters since the mid 1970s—but that is cer- recorded in 1976. Spot market gas prices climbed to above tam to happen again sometime. $6.00/MMBtu in June,almost double the level of a year ago. First talk of a crisis came from industrial users who feel the Note Alan Greenspan's use of the word "perceived" in high price impact first. Industrial consumers asked the president referring to the "tightening" of the -demand-supply balance." to"declare war on natural gas prices."Representatives from them- Calling the situation a "crisis" may be an emotional over-reac- ical,fertilizer,and other process industrials that use natural gas as tion,but we must remember that natural gas is a politically Sen- a feedstock complained that the high prices were making their sitive commodity. In such situations. perceptions have a way of products noncompetitive in international markets,aggravating the becoming realities. economic downturn. Look at what happened in 1978. m www.power-eng.corn POWER ENG A_ERING/AUGUST 2003 • _