US in 'worst' gas crisis since ''70s, says executive

Kate Thomas OGJ Online

HOUSTON—The US is in the "worst" natural gas supply crisis since the 1970s, the head of a major electric power and gas company said Tuesday, raising the possibility there will be calls for government intervention.

Richard C. Green Jr., CEO of UtiliCorp United Inc., said gas could continue to spike higher than $18/Mcf in California, but these prices should be taken as a signal to invest in supply and infrastructure. Aquila Energy, the nation's No. 3 gas wholesaler in 1999, is a UtiliCorp subsidiary.

"We have a worse time with power," Green said at a press conference during Arthur Andersen's annual energy symposium. Wholesale power prices have soared to as high as $8,000/Mw-hr during the past 3 years in parts of the country.

Green acknowledged high gas prices could lead to political problems, especially with residential gas consumers. While UtiliCorp spent much of the summer trying to prepare consumers for high gas prices this summer, now that winter has arrived "no matter what you do there will be concern over gas prices," he said.

During the past 2 weeks, spot prices in California have reached as high as $19.50/ Mcf, before easing back with warming weather, while prices in the Midwest have remained at, relatively speaking, modest levels of about $6/Mcf.In the futures market, the December contract has backed off from its all time settlement high of $6.57/ Mcf to just over $6/Mcf.

Chicago is blessed by location, said Bruce Williamson, CEO of Duke Energy International, a unit of Duke Energy Corp. While Chicago is served by multiple pipelines coming from Texas and Canada, California is not as heavily endowed, he said.

Storage is also down in the West. The working gas volume statistics released by the American Gas Association (AGA) showed the West only 67% full compared to the eastern region of the country at 90%. In addition, the western region experienced a withdrawal of 31 bcf of gas for the week ended Nov. 17. AGA noted that the huge withdrawal was very early in the heating season.

With respect to price controls, price caps tend to "damp off" price signals that spur investment, Williamson said. And, rather than moving up and down as they would in an unregulated market, capped prices will generally stay at the capped level.

Green attributed some of the problem to partially deregulated markets. In a completely deregulated market, he said, prices would act more rationally.

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-- Carl Jenkins (somewherepress@aol.com), November 29, 2000