ENERGY PRICES Cold comfort -- agency releases outlook for '06

This winter could see a 38-percent jump in natural gas prices, an agency says.
KNIGHT RIDDER NEWSPAPERS
WASHINGTON -- After a summer of record gasoline prices, the winter of record natural-gas prices is here, and there's little relief on the horizon for stressed consumers.
The Energy Information Administration sees natural gas prices for home heat rising by an average of 38 percent this winter. Consumers with electric heat also may see their bills rise sharply if their power companies burn natural gas as fuel.
On Monday, the Energy Information Administration released its U.S. energy outlook for 2006 and beyond.
"We have [natural] gas prices going down from where they are now, but still relatively higher than they were a year ago," administrator Guy Caruso said.
This month, natural gas soared to a record $15.10 per 1,000 cubic feet before retreating slightly. Two years ago, natural gas that cost $6 per 1,000 cubic feet was considered pricey.
The Midwest relies heavily on natural gas for home heating, and much of the Northeast now suffers because its utilities depend on natural gas to run their electric power plants. About 40 percent of the power that's generated in the six New England states comes from natural gas.
"Right now, in the section of the country we're in, demand is exceeding supply. We see that increasing, not only for home heating but for use in generating electricity," said Daniel E. Donovan, spokesman for Dominion Energy, a Richmond, Va.-based company that serves the mid-Atlantic. "That's why prices are so high right now: the need for electric generation."
It wasn't supposed to be like this, however.
From 1999 to 2005, U.S. electric utilities -- which are responsible for 20 percent to 25 percent of American natural-gas consumption -- increased their capacity to use natural gas to generate electricity by more than one-third. Until late 2001, natural gas traded at less than $3 per 1,000 cubic feet.
It seemed cheap and plentiful.
Today it costs about twice as much to generate electricity using natural gas as it does using nuclear energy or coal. After expanding their capacity to use natural gas, electric utilities are using only 20 percent of that capacity, because gas is so expensive.
"That gas capacity is sitting there like great white elephants," said Mary Novak, the managing director of energy services for Global Insight, an economic research firm in Waltham, Mass.
Have to hang tough
Global Insight expects prices to retreat to around $8 per 1,000 cubic feet by 2009, as pipeline projects in Canada come into play and terminals to import liquefied natural gas are built or expanded. At that point, the price to consumers for home heat also will fall.
Until then, consumers are left to wear sweaters, weatherproof their windows and grin and bear it.
"There are a limited number of things you can do over the short term," said James Owen, spokesman for the Edison Electric Institute, a trade organization for power companies. Many utilities have launched glitzy PR campaigns to warn consumers of coming high prices and explain why power providers aren't to blame.
Find new sources
The institute backs programs to conserve energy and efforts to construct buildings that are more energy-efficient. Both approaches help reduce energy demand and thus lower prices.
But what's really needed, Owen said, is federal approval to open new sources of natural gas.
"The solution to this in the long term is both supply and [energy] efficiency," he said.
Securing new domestic gas supplies isn't easy, however.
"The basic situation today is that areas we produce from are, for lack of a better term, old and tired. You find smaller quantities for each hole you drill," said Robert Ineson, a director of natural gas for Cambridge Energy Research Associates, a global energy-research firm.
"There are areas that aren't so thoroughly drilled. Where there might be bigger finds tend to be in areas that are politically sensitive."
Increase imports?
Energy experts think the United States has passed its peak natural-gas production in areas where drilling is allowed, for the most part off the coasts of Louisiana and Mississippi.
So the focus shifts to prohibited areas such as Alaska and offshore along the Outer Continental Shelf, but environmental objections so far are restricting drilling there.
One option is to import more liquefied natural gas. For transport, the gas must be liquefied at minus 260 Fahrenheit. Liquefied natural gas is extremely volatile, raising safety concerns. But it's one way to get gas from distant markets, such as Russia, that pipelines can't reach.
Cambridge Energy Research Associates thinks the liquefied natural-gas market will remain tight for three years, but will grow more by 2012 than it did during its first 40 years, thanks to all the projects that are under way.
Terminals are under construction in Texas, Louisiana and the Mexican coastal states of Tamaulipas and Baja California, and U.S. East Coast terminals are expanding.
Only four liquefied natural-gas marine terminals are operating now, in Lake Charles, La., Elba Island, Ga., Everett, Mass., and Cove Point, Md.