Natural gas price prediction

Natural gas is critical to U.S. energy needs, but nearly hah the nation's reserves are located under federal lands that environmentalists want to keep off-limits to drilling.

Reformers expecting stability in the deregulated natural-gas market saw prices tripling at the height of the current crisis, prompting unfounded fears that we are running out of gas. Indications are that the supply situation is improving, though California's Pacific Gas & Electric has just issued a "doomsday" warning that entire cities in that state could be without gas for furnaces, stoves and clothes dryers.

The current electricity and natural-gas crisis has been such a shock to the nation's energy system that nuclear power again has emerged as a potential savior, with generating plants that were regarded as practically worthless suddenly being sought at robust prices and consideration being given to building new nuclear plants. It was only yesterday that to express such an idea would have made one a candidate for a straitjacket. Even now, say nuclear advocates, any new move in the nuclear direction would be a baby step because of issues involving disposal of wastes and fears foisted upon the public by radical environmentalists.

So we must look to electric generating plants fired by coal, petroleum, hydropower or natural gas. And guess what? Those same foes of nuclear power also put coal, fuel oil and new dams on the back burner as tools for generating power. That left natural gas -- an efficient, clean-burning fossil fuel that results when, through one of nature's mystical processes, petroleum becomes a vapor.

There's a tendency to view natural gas and electricity as rivals. Residential users choose between one or the other for heating and cooking. Certainly they are quite different energy forms, with electricity having been generated and gas brought up from underground. But these two powerhouses of our energy-dependent society increasingly are partners. Almost every electrical generating plant currently planned for construction will be fired by natural gas, mainly due to severe antismog rules issued by the Environmental Protection Agency (EPA) under the Clinton/Gore administration in 1998.

This will be a problem for the new presidential panel assigned the task of creating a national energy policy. Headed by Vice President Richard Cheney, an energy expert, it is expected to report in about a month. Its recommendations likely will be merged with energy legislation proposed by various GOP members of Congress, and the issue promises to be a center of debate for months. Democrats apparently have no counterproposal.

While the Bush panel attempts to craft legislative remedies, key Bush administrators seem likely to move aggressively to increase energy supply. Few among them come from the lists of environmental activists favored by the previous administration, and a battle royal is shaping.

For instance, Interior Secretary Gale Norton already has brought the environmentalists out in full force to oppose her nomination. Bruce Hamilton, national conservation director of the Sierra Club, declared that "time and again she has sided with the polluters, the loggers, the miners" She is viewed as a protege of James Watt, interior secretary under President Reagan, and as an advocate of opening up the Arctic National Wildlife Refuge for oil and gas exploration while serving at Interior in the Reagan era. The refuge issue is a benchmark for radical environmentalists, with those who favor opening even a portion of it to exploration being viewed as agents of Satan.

Energy Secretary Spencer Abraham also has credentials that spark environmentalist suspicion. In the Senate he was a sponsor of a bill to abolish the department he now heads, and he voted to open up the Arctic refuge to oil and gas exploration.

The president's unofficial energy adviser, Kenneth L. Lay, chairman of Enron Corp., an energy-marketing giant, is yet another who has come under fire from the environmental left as an advocate of getting more energy online.

Environmentalists even have taken pokes at EPA Administrator Christine Todd Whitman for her doubts about their beloved global-warming crisis and for battles she had with EPA while serving as governor of New Jersey.

Indeed, Friends of the Earth labeled the whole Bush Cabinet as "recently defeated antienvironmental zealots and recycled Reagan and Bush-era industry-friendly operatives" Bush allies respond that, given the need to solve the energy crisis, the nation soon may be glad of this. Bush and his colleagues favor free-market solutions, whereas the environmental left demands that government intervene to favor caribou over people. The Bush team is convinced that government intervention never has paid off with regard to natural gas. The Natural Gas Policy Act of 1978 began the deregulation process, but the Powerplant and Industrial Fuel Use Act of 1978 constrained the use of that fuel in industry and for electrical-power generation. Legislative and regulatory course corrections over the years created the market of today.

While prices rose steadily for a while following the 1978 actions, they went into decline in 1985, and we entered the current roller-coaster boom-or-bust phase. Industry sources say that "it's not over."

The new relationship between natural gas and electricity certainly will be a factor in future prices. Neither producers nor consumers are used to dealing with heavy summer demand that includes the substantial new market for natural gas to fire the electrical generating plants. Thanks in large part to restrictions wrought by the government in concert with environmentalists, consumers who want electricity to crank up their air conditioners likely will pay a stiff price.

But this crisis bringing on the highest prices ever seen for natural gas didn't just pop out of a magician's cabinet. Though not a unique observation in his industry, a comment made two years ago by Mark Rubin, general manager for exploration and production for the American Petroleum Institute, foreshadowed events of today: "The natural gas is there, but Americans will never get to use it unless we are allowed access to it." He was summing up a report by the National Petroleum Council indicating a rapidly increasing demand for natural gas and an industry hampered by government restraints.

Why didn't the government listen? "When you have a growing demand for electricity or natural gas, you have to make sure the supply is there or eventually you're going to hit a problem. But if there's not an immediate problem, things don't get done very quickly" Rubin tells Insight when reminded of his prediction. "It was not until natural-gas prices started rising that the past administration really started paying attention, and by then we were deep into election season when nothing really gets done."

Former president Clinton not only removed vast tracts of public lands from exploration by creating national monuments, he also literally road-blocked development of the nation's natural-gas resources on remaining public lands. "If you prevent road-building, you prevent our ability to get in there" Rubin noted. So, while convincing many of us that the issue was about rampaging dune buggies and four-wheeling recreational users, what the administration and the environmentalists actually achieved with the roadless moratorium was to halt resource development without a specific ban. You can't tote natural gas out in a knapsack.

"The Clinton/Gore administration did a lot to close off access for drilling on federally owned land" says Patrick Burns, director of environmental, energy and natural-resource policy for Citizens for a Sound Economy. The Clinton administration made vast areas of the Rocky Mountains in Colorado, Wyoming and Montana off-limits for exploration.

"The federal government supposedly holds these lands in trust for the American people, but Clinton and Gore held them in trust for an elite group of environmental special interests, preventing development of these resources at a time when we need it most" Burns says. America has enough natural gas to meet its needs, we just need better access to it."

That observation is borne out in a study cited by William F. Whitsett, president of the Domestic Petroleum Council, a group of independent producers of natural gas. "Eminent gas experts who did a study for the National Petroleum Council say we have ample supplies of natural gas, even taking into account the increase in demand, through the end of this century" he tells Insight.