US failing to respond to looming natural gas shortage: speakers

Washington (Platts)--26Apr2005

The lack of industry and political response to the looming natural gas
shortage has left some wondering what it will take to spur action. "Like an
alcoholic, we may have to go all the way down to being a real drunk before we
recover," Bob Bessette, president of the Council for Industrial Boiler Owners,
told participants Tuesday at the John Hopkins Paul H Nitze School of Advanced
International Studies conference in Washington. "We've had blackouts, high
prices, and a number of things that objectively, you'd think would push it
over the edge," he said. 

Instead, Congress recently backed away from the suggestion that the US lift
its moratorium on drilling for off-shore gas on the East and West coasts, he
said. "That lack of guidance, maintenance and investment rolls back into the
business environment," he said. Bruce Henning, director of regulatory and
market analysis at Energy Environmental Analysis, said the nation's laws make
it easier to stop new projects than to build them, citing the difficulty of
getting new liquefied natural gas terminals sited.

"I've been at this for a long time," he said. "This is about the most
pessimistic as I have ever been." Henning said outdated concerns over
potential environmental damage to Alaskan fields and dangers associated with
LNG terminals, are slowing efforts to making sure the US will have the gas it
needs. With US gas reserves declining and demand increasing because of the
200,000 MW of gas powered generation that has come on-line since 1998, the US
must turn to the Arctic, deep water drilling in the Gulf of Mexico, the
McKenzie Delta and LNG to meet the supply gap. "There has been a lot of
tension between LNG and Alaskan gas but we really need both," he said,
predicting that by 2025, the two combined will supply 30% of US demand. "The
bottom line is the gas supply can support the growth if we can get these new
supplies," he said. Bessette put part of the blame for dwindling US supply on
the Sarbanes-Oxley Act of 2002, which was enacted in the wake of the Enron
debacle.

Bessette said the act has resulted in large multi-national companies closing
US plants and operations and moving their investments to other countries where
it is cheaper to explore and drill for oil and gas. "Before five years ago, we
had American companies with international associations," he said, adding that
the companies were able to treat their international assets separately. Now,
the law requires companies to treat all assets as global assets, forcing
drilling and building decisions to become global decisions. Sarbanes-Oxley,
Bessette said, has "changed the entire thought process." That kind of policy,
along with the resulting high gas prices, has cost the nation 2-mil jobs, he
added. Keynote speaker Gary Vasey, vice president of trading and risk
management practice at UtiliPoint, said hedge funds, reviled by some as the
reason for higher prices, recognize the nation is not going to revert to
substantially lower energy prices in the near future.

Vasey said the funds view the industry's lack of investment and the increasing
supply shortage as an opportunity to make money in the tight supply-demand
energy market. In addition, Vasey said exploration companies have become more
interested in pleasing Wall Street than investing in exploration, ensuring
that the supply-demand crunch will remain. "It seems to us that most fail to
recognize there is a new fundamental," he said. "They think there will be a
mean reversion in a few months. There is no reversion to the mean unless it's
to a higher mean," he said, adding that only the speculators correctly
predicted the higher 2004 prices. He cited the example of one company, which
he said returned twice the amount to shareholders that the company spent on
capital projects. "We need to see some of this money expended on the
industry," he said.

This story was originally published in Platts Natural Gas Alert
http://www.naturalgasalert.platts.com

Copyright © 2005 - Platts

Please visit:  www.platts.com

Their coverage of energy matters is extensive!!.