Unnatural Gas Woes


WASHINGTON, D.C.—Not since the early 1970s has America faced such a severe energy crisis. With the price of oil at an all-time high, energy suppliers are bracing for worse times ahead, caused by an expected soaring price of natural gas this summer.

During the first 12 weeks of this year, prices for both oil and natural gas at one key market center rose by more than 30 percent. As a result, electricity prices began to increase and will rise sharply this summer. That is because electric-generating units burn natural gas in order to meet heavier short-term demands on an overtaxed system due to air-conditioning and other summertime uses. Thus, in the months to come the price of gas will determine the price of electricity, even in areas where utility burners fire up with coal or nuclear.

Natural gas now accounts for some 56 percent of all fuel used in the U.S. That includes gas that is burned in home furnaces and appliances, such as stoves, as well as for electricity.

The cost of gas is especially important when the economy is flat and, in the view of some analysts, drifting toward recession. And the economy is wobbling in part because of the spiraling debt and huge trade deficit. Our trade deficit is greater than at any other time in history and larger than any other trade deficit in the world. Natural gas is an often little-noticed, but it’s important because it’s widely used in industry. Farmers, who use fertilizers made with natural gas, are already in perilous straits. Without affordable fertilizer they can’t possibly meet their scheduled yields and hence can’t pay the banks and other financial institutions that have loaned them operating funds—loans often based on expected crop yields.

The U.S. is not in a position to produce more gas on its own, save for possible new wells on the eastern front of the Rockies. Greater production in Alaska is unlikely. Imports are probably the key to increased supply. There is considerable gas in the Canadian Arctic, but transporting it by pipeline down through Canada and into the U.S. Midwest would entail building a long and expensive pipeline. It would also require approval by the Canadians. Since we dominate their petroleum industry, we’ve never paid much attention to their interests, but the export of vital energy supplies will touch a raw nerve, and approval of a new pipeline can’t be taken for granted.

Getting more gas will depend on expanding the liquefied natural gas (LNG) industry, which takes gas at a wellhead—say, in Algeria—freezes it into a liquid, pumps it into special tankers, and transports it to the U.S., where it is run through another apparatus to unfreeze it and put it into pipelines. Currently the LNG business primarily services South Korea, Japan, and Taiwan. Increases in imports will mean building huge new projects up and down the East Coast and signing long-term contracts for the actual gas somewhere abroad. The LNG facilities will take four to five years to build, and the gas contracts usually run to 20 or 25 years.

Potential sources are Iran (which we don’t deal with) and Qatar, which has suspended some production and taken other production away from ExxonMobil and given it to the French firm Total. The future of Russian reserves is complicated because of business scandals that have debilitated the industry. There is considerable gas in the Caspian Sea region, notably in Turkmenistan, but China is building a pipeline into that area, and other pipelines from Central Asia go west toward end markets in Europe. As other nations shift to gas for space heating, the U.S. will face growing competition from Western European countries, notably Spain and France, along with Japan, Mexico, and China, which will soon be the biggest energy market in the world.

There are other obstacles: The U.S. is far away from sources of gas, which means the transportation costs are high. In the past there were serious questions raised about the safety of LNG tankers, and as a result they are heavily guarded because of susceptibility to terrorists.

Worst of all, the anticipated rise in costly LNG dries up potential funding for research into alternative energy sources.

We seem forever doomed to a future of more oil, and most probably rationed oil at that.

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