Storage injections ease U.S. natural gas fears

Heat wave may pinch winter needs; Abraham promotes energy conservation

Gary Park

Petroleum News Calgary Correspondent

A recent wave of record gains in U.S. natural gas inventories has eased some fears about a winter supply crunch, although Energy Secretary Spencer Abraham said storage may still miss its normal 3 trillion cubic feet.

But he promised a June 26 summit of producers, consumers and policymakers in Washington, D.C., that a strategy, with a heavy emphasis on conservation, will soon be unveiled to tackle the supply/demand imbalance.

A final plan will hinge on Department of Energy consultations with the White House and other agencies, plus a series of regional conferences with consumers and producers, Abraham said.

For now, the focus is on avoiding a winter crisis and a further acceleration of prices at a time when Abraham conceded gas in storage is 32 percent below last year’s level and 22 percent below the five-year average.

The one glimmer of hope came from the Energy Information Administration, which reported record injections of 127 billion cubic feet in the week ended June 20, the fourth straight week of triple-digit injections.

However, Abraham cautioned that a heat wave through July and August could quickly divert supplies targeted for storage to meet air-conditioning needs and stall attempts to build stocks ahead of winter.

U.S. prices could spike

He warned that U.S. prices could spike to $9 per million British thermal units in the upcoming heating season and, even with normal summer temperatures, will likely hover in the $5-$6 range for the balance of 2003. That would translate into an average 19 percent increase over 2002-03 in heating bills of average Midwest consumers.

Caruso said that every 1 percent drop in Lower 48 production levels generates a price hike of 5 to 6 percent.

Continued strong prices could force gas-intensive industries, such as fertilizer plants, to shut down their operations altogether and sell their gas, he said.

Analysts say persistent high prices have already caused demand-destruction by forcing chemical, steel, fertilizer and other manufacturers to slow operations.

Drilling not enough

“A lot more can be done on the demand side — efficiency and smart use of energy,” he said. “I would expect that is an area where we will direct a lot of our focus.”

The American Petroleum Institute is already pressing the Bush administration to start an advertising campaign urging consumers and businesses to cut energy use, which institute President Red Cavaney said could have a greater near-term impact than the drill bit.

For those who see stepped up liquefied natural gas imports as the answer, Johnnie Burton, U.S. Minerals Management Service director, told the summit that LNG should be viewed only as a stabilizer of gas prices over the long term.

Others, such as energy analyst Daniel Yergin, believe LNG could soar from 1 percent of current U.S. demands to 20 percent by 2020.

Qatar’s Oil Minister Abdullah al-Attiyah, after meeting Abraham June 26, told reporters his country was ready to deliver 20 million metric tons a year of LNG to the United States once terminals and other infrastructure were in place.

Echoing earlier lobbying efforts, Diemer True, chairman of the Independent Petroleum Association of America, blamed the supply/demand squeeze on inconsistent government policies that have both promoted the use of clean-burning gas and discouraged domestic production.

He said the industry is denied access to vast resources on federal land in the Rocky Mountain region, Gulf of Mexico and East and West coasts.

Cavaney agreed that speeding up drilling approvals and dropping restrictions on federal lands could help build winter supplies.