Industrials claim gas industry ripped off America

While some rip-offs happened at various points along the California border during the big crisis, drilling moratoria were not the cause.
     US consumers overpaid by $111 billion for gas used in the past 41 months, said the Industrial Energy Consumers of America in December, reflecting an insensitivity to market forces.
     That burden could have been avoided if the US had lifted drilling moratoriums, it argues in a report to Congress.
     The price of natural gas rose 83% since the gas fly up began in June 2000, says Paul Cicio, executive director of the organization.
     By comparison, the price of crude oil during that same period increased just 46%, despite a period of high prices caused by war with Iraq.
     The report, which compares the Henry Hub gas price for the most recent 41 months to the previous 41 months, said in December that the price increase cost industrial consumers $57 billion and the economy a lot of jobs that may never return.
     The preventable gas crisis cost residential consumers $33 billion and commercial consumers $21 billion.
     "Every penny of the $111 billion could have been prevented and was totally unnecessary. The US is blessed with enormous natural gas reserves yet we do not lift drilling moratoriums," the report said.
     Industrial Energy Consumers of America's members are: Abbott Laboratories, Air Liquide America, American Forests & Paper Assn., BASF, Bayer, Celanese, Coors Brewing, Degussa, Dow Chemical, Dow Corning, Eastman Chemical, FMC, Holcim, Huntsman, MeadWestvaco, Nova Chemicals, Owens Corning, Riceland Foods, Sasol North America, Terra Industries, The Timken Co, Tyson Foods and Vulcan Chemicals.
     The complete report on the consumer costs for the gas crisis is available at www.ieca-us.org.
     We are sympathetic to industrial managers who want to be competitive in world markets but the study gives the impression that gas prices in the previous 41 months mentioned were fair and adequate for giving producers an incentive to risk costly capital in pursuit of gas supplies.
     It wasn't.
     Thus the loss of interest in exploration caused by low gas prices led to less new supply and higher prices -- not the evil that lurks in men's hearts.
     Drilling moratoria are not helpful but it's time for industrials to learn how much it costs to find gas because America needs lots of it in the years to come.
     One beauty of a free market is that if the industrials above see great fat in gas prices, they are free to join the fun and buy a gas-producing firm or two to assure supply at a fair price.
     The reality is that a free market for gas at wholesale assures those firms of the best price they're ever going to get.
     If gas producers seem to make a killing at times they lose their shirts at other times and it's a business the industrials know better than to wade into.
     (Story originally published in Restructuring Today 12/4/03)