Leaders Stress Need for National Energy Bill

Leaders Stress Need for National Energy Bill

Oct 01 - Roanoke Times & World News

Higher energy prices are cutting deeply into the bottom lines of small- and midsize manufacturers, forcing business leaders to push for a national comprehensive energy bill.

"Production is at record levels but we're barely skimming by," said Fletcher Smoak, chief executive officer of Old Virginia Brick in Salem. He said his natural gas bills doubled this summer.

Smoak recently testified before a U.S. House subcommittee in Washington. He likened the experience to preaching to the choir because the House of Representatives passed an energy bill twice, but the Senate blocked its passage both times.

Natural gas prices have surged after Hurricane Ivan caused greater-than-expected damage to infrastructure and reduced gas production in the Gulf of Mexico, according to Natural Gas Weekly. Price increases since Sept. 15 ranged between 25 cents and 70 cents per dekatherm.

From Tuesday to Wednesday, the price of natural gas jumped 50 cents per dekatherm.

Industry members and observers said natural-gas production in the United States has been unable to meet demand. As a result, environmentalists, industry representatives, academia and consumers, among others, have formed a bipartisan commission to figure out what needs to be done to ward off a crisis.

Ideas range from pushing to open new areas for drilling to importing more liquid natural gas. The National Commission on Energy Policy is expected to release its recommendations in December.

Smoak said he was convinced, but could not prove, that hedge funds and commodity advisers have been manipulating the prices.

He needs 975 dekatherms a day to make bricks at his two plants in Salem. Another 650 dekatherms are needed for his plant in Madison Heights near Lynchburg. From November to March he paid $6.58 a dekatherm, up from $5.22 a dekatherm in 2002.

His summer bills increased more than 100 percent. He paid $6.21 a dekatherm, up from $3.09 a dekatherm in 2002. These prices include the cost of fuel, brokers' fees and transportation.

For the first time in the company's history, Smoak paid more for summer gas at the Henry Hub in Texas than he did for the preceding winter's supply.

Smoak paid nearly $1.5 million for natural gas for calendar year 2004.

"We feel like we're working for the bank and the energy companies," he said.

For every $1 increase in the cost of the gas, the cost of manufacturing goes up $9 per 1,000 bricks.

By year end, the company's profit margins will be about 3 percent of the company's sales, despite record shipments and record production. "We should be at 11 percent of our sales," Smoak said.

He can install a more efficient kiln, which would reduce the cost of gas by about $600,000 a year. But Smoak said he failed to see the benefits of investing $7.5 million for a kiln. He prefers to keep his 185 employees.

He favors more drilling, an investigation into the causes of the latest price spikes, increasing energy alternatives such as landfill natural gas, and a dedicated tax to help producers drill deep wells.

Smoak said he wants to tap into the natural gas from the closed landfill near Explore Park, but transporting the gas would be a problem.

The landfill has 2.4 million tons of waste, which produces about 480 BTUs. That's slightly less than half of the required 950 BTUs needed in order for Roanoke Gas to move the natural gas.

Smoak said he was investigating whether he can strip carbon dioxide from the landfill's waste, which would raise the BTU content. The ultimate risks to Old Virginia Brick would be the quality of the gas and the useful life of the landfill output.

For the next two to four years, Smoak said, increased drilling in new fields and offshore is essential.

Smoak, aware of the environmentalists' fears of drilling in pristine areas such as the Arctic, said people need to remind themselves that their houses stand on what once was pristine land.

"A 6-inch hole in the Arctic is like a postage stamp on a 12- foot by 12-foot rug in your living room," he said.

John Williamson, president of Roanoke Gas, joins Smoak in blaming Congress for stalemating the comprehensive energy bill.

"I don't think we have a shortage of natural gas in North America," he said. "We have a shortage of available natural gas. We're not drilling and developing at the rate we should. We have an access problem for environmental and political reasons."

Demand for natural gas surged during the 1990s when it became the overwhelming choice for new electric generation.

Smoak said electric utilities need to return to using coal and add high-quality scrubbers and pollution control equipment in the next two to three years to give the gas industry a reprieve.

For the long term, Smoak lobbies for building an Alaskan pipeline and for new LNG terminals.

The bipartisan commission, in its discussion paper, said recent discussions have focused on providing federal tax incentives to support the pipeline construction.

For far more extensive news on the energy/power visit: http://www.energycentral.com .