Natural Gas's Danger Signs

The price of natural gas for November delivery closed at $13.38 per million British thermal units (Btu) yesterday on the New York Mercantile Exchange. That was up 90 percent from a year ago. Analysts expect prices to fall somewhat after hurricane-related repairs are completed in the Gulf.

Prices in the largest producing countries -- such as Algeria, Qatar and Nigeria -- are sharply lower than those in the United States -- below $1 per million Btu, analysts said. In some European countries, natural gas sells for about half the U.S. price.

Unlike crude oil, whose price is set on a world market, natural gas prices are set in local markets. In countries where supplies are abundant, prices tend to be lower.

Rising prices are generating concern on Capitol Hill and are increasing pressure on lawmakers to open drilling areas that are now off limits. A measure approved by the House Resources Committee last week would allow drilling for natural gas offshore on the Outer Continental Shelf.

Lawmakers who support the measure said momentum is building after years of failed attempts. "I have a lot of members saying . . . 'I'm seriously thinking of switching to your side,' " said Rep. John E. Peterson (R-Pa.)

The Washington-based National Association of Manufacturers and the Arlington-based American Chemistry Council, which represents the chemical industry, have been pushing for more domestic production. Businesses small and large have been making their case to members of Congress that something needs to be done about natural gas prices.

Peterson, whose district includes manufacturers of brick and asphalt, said, "There's just no way that business can absorb this."

Environmentalists are seizing on higher prices as evidence of a need for conservation. They are calling for more strict requirements for appliances that use natural gas and for housing insulation. They also want tax breaks to encourage consumers to buy more efficient appliances.

"We just don't have enough natural gas out there to meet our long-term needs," said Karen Wayland, the Washington-based legislative director of the Natural Resources Defense Council, an environmental group. "The only answer, especially in the short term, is energy efficiency."

Chemical industry officials are warning that more plants will shut operation in the United States and relocate. "They're saying, 'Okay, we have a budget of a billion dollars we're going to invest in production. Where's the best place to do it?' " said Owen Kean, senior policy adviser for the chemistry council. "Increasingly they're making the decisions to do it someplace else."

The United States has five terminals where liquefied natural gas can be imported, and a number of additional facilities have been proposed or approved. A number of major projects around the world are underway that will produce liquefied natural gas. Analysts said that in the future, the country will become more reliant on imports, which eventually could help to moderate prices.

But in the meantime, companies that import liquefied natural gas have been struggling to obtain more. Most of the supply is locked up in long-term contracts, and companies that sometimes have extra have been suffering production problems.

"That's kind of dried up what would normally be excess production available for spot delivery," said Jane Michalek, a vice president with Suez LNG of North America. "There's not a lot of excess production out there right now."