Editorial: Rising Gas Prices Pressing Profits Down
Many manufacturers not only use natural gas in their processes but also use electrical power generated by natural gas, so the current upswing in the price of natural gas is putting the squeeze on U.S. manufacturers. The National Association of Manufacturers predicts by this fall the wholesale price of natural gas prices could be about $7 per 1 million Btu, compared with the current price of about of $5.50, and compared with a price in the range of $2 to $3 throughout the 1990s.
Federal Reserve Chairman Alan Greenspan, testifying in June at a House committee hearing on natural gas, said that current high gas prices (74% above last year's level) could rise further through the summer and into next winter. He said that natural gas prices are likely to remain high in the immediate future because last winter depleted gas stocks to near historic lows and the U.S. has been unable to import significant amounts of liquefied natural gas (LNG) to boost supplies. According to the Energy Information Administration, at the end of May, there was a natural-gas inventory of 1.2 trillion cubic feet, 38% below the inventory for the same time in 2002, and 28% below the average for the previous five years.
Natural gas demand in North America is increasing at about 2.5% per year, whereas supply is increasing at about 1%. Economic activity is predicted to increase through 2003/04. According to the American Gas Association (AGA), natural gas currently meets one-fourth of U.S. energy needs, and demand for natural gas is expected to increase by 50% by 2025. Some of this is due to more natural gas being used for electricity generation and some industries switching to natural gas as the price of crude oil increases.
Greenspan pointed out that we have been trying to reach an agreeable trade-off between environmental and energy concerns for decades- as Congress continues its debate on national energy policies; that is, whether energy exploration or conservation and environmental protection should be the preferred approach. However, the predicted upsurge in natural gas prices is getting more attention as the Energy Policy Act of 2003 is working its way through Congress. The legislation would open some offshore areas to natural gas exploration and development, support the construction and operation of a natural gas pipeline in Alaska and give more muscle to energy efficiency programs and research on alternative energy sources such as fuel cells. The legislation has support of some industry groups because imbalance in supply and demand is at the root of the escalating prices.
Many of the areas identified as potential hotbeds of this natural resource are off limits to natural gas exploration and production, primarily because they are environmentally sensitive. But industry sources say gas exploration can be conducted in ways that also protect the environment with advancements in technology.
Unfortunately, while these are positive steps in addressing the projected increase in demand in natural gas over the long term, it doesn't solve the immediate problem facing industry.