01 Aug 2003 No Excuse for Natural Gas Shortage

With summer’s hot weather finally upon us, Americans by the millions are cranking up their air conditioners to help them cope with this seasonable discomfort. But in a few weeks they’ll be getting the bill from the local power company – and they won’t like what they see.

Americans are about to pay dearly for an acute shortage of natural gas that has sent prices for this widely-used fuel through the roof. The price of natural gas in the U.S. has nearly doubled in the past year, to $6.31 per million British thermal units (Btu).1 According to Energy Secretary Spencer Abraham, storage levels of gas are at their lowest point in almost three decades.2 Simply put, domestic production of natural gas has not kept pace with growing demand. How did this happen?

For decades, natural gas was used by utilities to help meet demand during winter’s coldest months. To deal with seasonal fluctuations in price, power companies typically purchased gas in the summer when demand and prices were low and stored it for winter use when demand and prices were higher.3 This arrangement began to unravel with the enactment of the Clean Air Act Amendments of 1990, which encouraged the use of natural gas by putting strict limits on emissions of a host of pollutants, including those from coal-fired generators.

During the 1990s, the Clinton Administration actively promoted the use of clean-burning natural gas, touting it as an environmentally friendly alternative to coal. Natural gas became a key component in the Clinton Administration’s policy to combat the alleged “threat” of global warming brought on by manmade emissions of greenhouse gases. Meanwhile, energy deregulation spawned a boom in construction of new power plants. More than 90 percent of the power plants built since the late 1990s run on natural gas,4 and the Energy Information Administration (EIA) estimates that the US appetite for natural gas will grow from 22 trillion cubic feet in 2001 to 35 trillion cubic feet by 2020.5

However, the same federal government that was promoting the use of natural gas was also systematically limiting its supply. Though the United States has vast reserves of natural gas both on land and off shore, much of it is off limits to drilling. Through the expansion of wilderness areas and national monuments in gas-rich regions of the West, the Clinton Administration shut off millions of acres to oil and gas exploration. According to Energy Secretary Abraham, approximately 40 percent of known U.S. natural gas reserves are inaccessible as a result of stringent environmental regulations on federal lands under which they are located.6

The Bush Administration is attempting to open federal lands for oil and gas exploration to deal with the nation’s soaring energy needs. But environmental groups insist on tying the Administration and industry in knots with lawsuits which delay getting the gas to the consumer. Additional problems arise through the lack of an adequate infrastructure to transport the gas. Alaska has 35 trillion cubic feet of known natural gas reserves, but only now is Congress getting around to funding a pipeline to transport it to the lower 48 states. Construction of the pipeline could take ten to 12 years.7

The high price and volatility of natural gas is threatening the very existence of small and medium-sized manufacturers across the nation. Unfortunately, Congress doesn’t seem to be paying attention. The Climate Stewardship Act sponsored by Senators John McCain (R-AZ) and Joe Lieberman (D-CT) to implement terms of the Kyoto Treaty on Climate Change will only exacerbate the crisis.

A new analysis by the EIA shows the McCain-Lieberman bill will increase natural gas prices another 16 percent over the next seven years.8 That’s an awfully short-sighted way to treat an environmentally friendly fuel.

Bonner Cohen is a senior fellow with The National Center for Public Policy Research. Comments may be sent to [email protected].

Footnotes:

1 Kenneth Bredemeier, “Natural Gas Prices to Stay High With Stocks Low,” Washington, Post, June 11, 2003, p. E3.

2 “Natural Gas Prices Predicted to Rise,” Washington Times, June 10, 2003, p. A14.

3 Russell Gold and Greg Ip, “Greenspan Doesn’t See Gas Prices Falling Soon,” Wall Street Journal, June 11, 2003, p. A2.

4 Peter Behr, “No Help for Natural Gas Users,” Washington Post, May 21, 2003, p. E1.

5 “U.S. Natural Gas Markets: Recent Trends and Prospects for the Future,” Energy Information Administration, U.S. Department of Energy, Washington, D.C., May 17, 2001, available at http://www.eia.doe.gov/oiaf/servicerpt/naturalgas/index.html as of July 24, 2003.

6 Washington Times.

7 Peter Behr, “CFTC Seeks Data From Gas Price Publisher,” Washington Post, May 21, 2003, p. E4.

8 “Analysis of S. 139, the Climate Stewardship Act of 2003,” U.S. Department of Energy, Washington, D.C, June 2003, available at http://www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf(2003)02.pdf on July 24, 2003.