Growing Pains: Natural Gas Prices
[Sorry, the video for this story has expired, but you can still read the transcript below. ]
GWEN IFILL: Gasoline prices aren’t the only energy costs that have leaped this summer. The growing number of people who use natural gas are also experiencing sticker shock. Tom Bearden reports.
TOM BEARDEN: Darlene Murphy lives in a tiny apartment in Chicago, where her gas and electric bills can run as much as $300 a month. Like most home consumers, she’s facing higher energy prices. And that’s the last thing she wants to hear about.
DARLENE MURPHY: What I do is, I pay as much as I can pay, and then I just keep paying until the bill is paid down.
TOM BEARDEN: So sometimes you get behind.
DARLENE MURPHY: Yes. A lot of times I get behind.
TOM BEARDEN: Murphy says higher bills have already forced her to make some hard choices.
TOM BEARDEN: What do you have to give up?
DARLENE MURPHY: Sometimes some of the foods that I have, or some of the things that I need in the house.
TOM BEARDEN: So it’s sometimes a question of heating or eating?
DARLENE MURPHY: Sometimes.
TOM BEARDEN: People like Darlene Murphy are the victims of growing pains in the vast industry that produces and supplies natural gas in the U.S. In the last few years, demand for natural gas has gone up, because it’s a clean, low- polluting fuel burned in many of the country’s newer electricity- generating plants. Prices for natural gas rose because that demand grew without a corresponding increase in supply. Tom Petrie is president of an energy investment firm in Denver.
TOM PETRIE, Chairman and CEO, Petrie Parkman: We’ve largely exhausted some of the low hanging fruit, or I would argue the medium hanging fruit, of the latest cycle of development of conventional gas. We’re in an environment again where price signals will bring out new supply, but it won’t meet the usual timeframe of Americans, which tends to be pretty short-term.
TOM BEARDEN: This well belongs to Tom Brown, Incorporated, which has a lot of gas wells in the rocky mountain region, and wants to develop more. But it hasn’t been easy. The company’s vice president, Tom Dyk, says environmental regulations have made it increasingly difficult to drill new wells.
TOM DYK, Vice President, Tom Brown Inc.: Access to federal land is restricted by things such as a permit process that by the federal regulations should take 30 days. We’ve been tracking for… since 2001. It took 83 days in 2001, 134 days in 2002, and 179 days so far this year in 2003.
TOM BEARDEN: Even after permits are granted, they have restrictions that sometimes allow drilling only three and a half months out of the year. There are more gas fields in Canada and the north slope of Alaska, but they lack the pipeline infrastructure to bring that gas efficiently to market. Gas can also be imported from abroad by cooling it until it’s a liquid, and transporting it in tankers specially built to carry liquefied natural gas. When it reaches the U.S., it’s reheated until it’s a gas again, and sent to customers through pipelines. Imports of liquefied natural gas, or LNG, are growing, but not quickly enough to increase gas imports significantly in the short term.
TOM BEARDEN: Can any of those options– Alaska, Canada, L.N.G.– Meet the short-term situation that some people are calling a crisis?
TOM DYK: Probably not.
TOM BEARDEN: Will there be a significant consumer impact?
TOM DYK: Yes. There has been, and there will be. To some degree, some people have already adjusted, but the adjustments are painful.
TOM BEARDEN: For consumers like Darlene Murphy, the impact will be worse if this winter is a repeat of the last, when home heating drew natural gas reserves down to record low levels. In the past, gas producers replenished reserves during the summer, and prices generally fell. Not so in 2003. Production didn’t grow enough to fully replenish the drops in reserves, and prices are threatening to go higher. Some predict consumers of natural gas will see their winter heating bills double, perhaps even triple. Stuart Iseminger knows the problem. He directs social services in Darlene Murphy’s neighborhood, including a federal program called LIHEAP, the Low Income Home Energy Assistance Program.
STUART ISEMINGER, Howard Area Community Center: We service a low-income population, people who are elderly or have disabilities, have very fixed incomes. There’s no disposable income, so that when there’s any even small increase in utility bills, it really has an impact on their household budget.
TOM BEARDEN: They just don’t have any flexibility.
STUART ISEMINGER: There’s none.
TOM BEARDEN: Iseminger fears the center will be besieged this winter when utility bills go up, but says there’s no currently existing mechanism in the LIHEAP program to deal with rising utility costs, and no hope of more money. Not all natural gas is used for heat or power. It’s also the source of nitrogen, which is the basic raw material in fertilizer. When natural gas prices rose, so did the price of fertilizer to farmers like Eldon Gould. He grows corn and soybeans near Kaneville, about 50 miles from Chicago. His budget has been stretched because he uses ammonium nitrate fertilizer.
ELDON GOULD, Farmer: This year, it’s going to be significant, but I guess I’m probably more concerned about, you know, the prices next year. It looks like the prices that we may be able to book fertilizer for the ’04 growing season are even higher than this year’s, so it causes you to take a second look at how much you’re going to apply, and perhaps even your crop mix.
TOM BEARDEN: In some parts of the country, farming is a pretty marginal business as it is. Is this just going to make it tougher?
ELDON GOULD: Just makes it tougher. Increased input costs only adds to our expense column, and thereby puts a negative effect on our bottom line.
TOM BEARDEN: When there’s a shortage of oil, imports can be ramped up to meet demand. Some have suggested that fertilizer could be imported as well. But that’s not considered practical in the short term because of a lack of infrastructure to bring it to consumers. With gas prices high, spokesmen for the fertilizer industry say business is hurting and jobs have been lost. Tom Dyk has called for a national energy policy that would stabilize prices and the supply of natural gas.
TOM DYK: I think it’s a problem that needs to be addressed long-term and not short-term. It needs to have a national energy policy that addresses energy. Cheap energy is what drives a robust economy.
TOM BEARDEN: Analyst Petrie sees no changes in the short run.
TOM PETRIE: Weather is a factor. Economic sensitivity is a factor. Public policy and lead times all enter into it. And so the combination of those factors make natural gas the most volatile commodity in the world.
TOM BEARDEN: There have been proposals for investment in deep water ports to allow more importation of gas from overseas, but that would cost hundreds of millions of dollars, and take years to complete.