Natural-gas spike hits US consumers

Low supplies have meant high prices that may go even higher in the runup to winter.

Conventional wisdom on Capitol Hill is that nothing ever gets done on energy issues - or many others - unless there is a full-blown crisis. If so, the prospect of costly air conditioning this summer and idle factories this winter because of soaring natural-gas prices could be just the boost needed to leverage a long-contested energy bill out of the Senate and into law.

Republicans hope so. That's why Federal Reserve chairman Alan Greenspan was invited once again to Capitol Hill Tuesday to sound the alarm again on how "very tight supplies" of natural gas could threaten the economic recovery.

Here's the argument: Last winter's icy blasts drew down natural-gas supplies in storage to extremely low levels, and they are not filling back up at a normal rate. Canada, America's main supplier of natural gas, hasn't been able to pick up the slack. Nor has the US industry been able to expand, because mature wells are tapping out more rapidly than new wells are coming online. The result: very high prices now, and possibly higher prices in the runup to next winter.

None of this is good for the stop-and-go economic recovery.

Congress may also take blame for the problem: Many homeowners and businesses have had federal incentives to switch from oil and coal to natural gas. When they open the gas bill these days, many are wondering why - and what government will do about it.

"This is a No. 1 issue for the business community, because the government for the last two decades has encouraged and pushed business to move to natural gas," says R. Bruce Josten, executive vice president of the US Chamber of Commerce.

"Almost all the electrical utilities have moved away from coal to natural gas. The aluminum, paper, and chemical industries have all switched to natural gas in large measure. We have dramatically increased demand, but we haven't fixed supply," he says.

Predictions that gas prices will remain high and volatile leave little incentive for businesses to take risks, expand, or invest, he says.

Gas supplies are currently the lowest they have been since record keeping began in 1976. The total is 623 billion cubic feet, according to the US Energy Department. Energy Secretary Spencer Abraham has called an emergency meeting of the National Petroleum Council this month to address this issue.

While Republicans push to expand supplies, Senate Democrats are urging measures to improve efficiency and conservation. This week, Mr. Abraham said he agreed with these concerns and would work with the Senate to address them.

On April 11, the House of Representatives passed its energy bill, which authorized a natural-gas pipeline from the Alaskan North Slope to the lower 48 states. Alaska holds 18 percent of America's undeveloped proven gas reserves, some 30 trillion cubic feet. But the cost of getting those reserves to market has been prohibitive.

The Senate bill, in its third week of debate, includes a loan guarantee of up to $18 billion to help build that pipeline, but disagreements remain over whether to route it through Alaska or Canada.

"Natural gas has become a very important fuel in the United States, and the environmental community would like to see that grow," says Amy Jaffe, senior energy analyst at Rice University in Houston. "But the devil is in the details." Indeed, environmental groups are wary of the Bush administration's goal of opening more federal lands to drilling. There are vast natural-gas reserves in places such as the Rocky Mountains, Alaska, and off the Florida coast. But so far, these places have been off-limits to drilling because of environmental concerns. "There is a huge amount of natural gas in the United States, but it all gets down to the 'Not in my backyard' sentiment," says Jaffe. "Maybe Alan Greenspan's focus on the economic impact will provide a forum for that debate."

• Staff writer Kris Axtman contributed from Houston.