Natural Gas's Danger Signs

Floodwaters covered the Henry Hub natural gas facility in Erath, La., after Hurricane Rita. Natural gas prices have risen since hurricanes Rita and Katrina.
Floodwaters covered the Henry Hub natural gas facility in Erath, La., after Hurricane Rita. Natural gas prices have risen since hurricanes Rita and Katrina. (By David J. Phillip -- Associated Press)
By Justin Blum
Washington Post Staff Writer
Friday, October 7, 2005

Soaring natural gas prices threaten to propel winter heating bills sharply higher, slow economic growth and push manufacturers overseas.

U.S. consumers could face bills averaging 48 percent higher this season than last year, according to predictions by the economic research firm Global Insight Inc. The escalating costs could cause Americans to cut back on dinners out, trips to the mall and spending, crimping U.S. economic growth. Businesses, squeezed by high energy costs, could limit expansion plans. The high prices also are pumping up inflation.

Manufacturers that use huge amounts of natural gas are scouring the world for cheaper prices and considering moving operations to ease their costs. A renewed exodus -- many companies have already shifted overseas -- could further knock back growth in the United States and boost unemployment.

Andrew N. Liveris, chief executive of Dow Chemical Co., told a hearing yesterday before the Senate Energy and Natural Resources Committee that the country is in a "natural gas crisis." The Midland, Mich., company, which uses large amounts of the fuel to produce chemicals, must consider locating new plants in other parts of the world, such as China and the Middle East, because of U.S. energy costs, he said.

"How can I recommend investing here?" Liveris said.

U.S. natural gas prices are among the highest in the world. Though the United States imports some natural gas, most is produced domestically. But supplies have failed to keep pace with demand.

Power plants have increasingly turned to natural gas for fuel over the past decade because it is cleaner-burning than coal. About 17 percent of the country's electricity is generated by natural gas, according to government data. Natural gas accounts for about 63 percent of energy consumed in U.S. households. The fuel heats 55 percent of the country's homes.

U.S. natural gas prices have been edging higher for years and shot up sharply in recent weeks because of hurricanes Rita and Katrina, which damaged production in the Gulf of Mexico along with onshore processing facilities.

Imports are not able to make up for the lost supplies -- as they have for oil and gasoline -- because not enough liquefied natural gas is available. Too few ships and terminals exist to handle a significant increase in imports. Domestic production, which has been flat in recent years, cannot be quickly increased without significantly more drilling, analysts said.

"There is justification for concern about natural gas prices at these levels," said Jason Schenker, an economist with Wachovia Corp. in Charlotte. "Prices now are essentially twice what they were last winter. That's likely to squeeze consumers."

The cost to heat homes with natural gas could increase about $500 this winter compared with last year, according to Global Insight in Lexington, Mass.

In the D.C. area, officials with Washington Gas forecast that consumer bills could jump as much as 32 percent compared with a year ago. The company said it put large amounts of natural gas in storage over the summer, when prices were slightly lower, which will help hold down prices a bit. Costs could increase if the winter is unusually cold and demand increases, company officials said.

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