Oil is not our only energy problem

Below are two stories about natural supply prospects in the US - both
sobering.
ken piers

Natural Gas Supply Fears Raise Prices
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Sep 30 - USA TODAY -
 
WASHINGTON -- Natural gas prices have jumped 17% in two days, a chilling
development for the millions of Americans who heat their homes with natural
gas.
The price for a million British thermal units of natural gas trading in New
York for delivery in November rose 56 cents, or 8.8%, to $6.911 Wednesday as
supply jitters rattled investors. The increase came on the same day the price
of oil dipped from an all-time high of nearly $50 a barrel. That was the first
daily decline in two weeks.
The rise in natural gas prices suggests that although oil has been stealing
the headlines, it isn't the only energy source to warrant attention. In fact,
many analysts expect natural gas prices to continue to rise, perhaps hitting
record highs this winter.
''If we have a normal winter . . . we will probably see prices in the
$10-to-$12 range and possibly higher,'' says Andy Weissman, chairman of Energy
Ventures Group, a Washington-based investment firm.
About 55% of U.S. homes are heated with natural gas. While it's unclear
whether the recent price rises will directly show up on consumers' bills,
prices are expected to be higher this year than last, and the latest gains will
likely bolster those predictions.
The Energy Department earlier this month predicted the total winter heating
bill for the average natural gas user will be $1,010, up 17% from last winter
and 68% higher than the 2001-02 season.
''As always, the severity of the winter will undoubtedly be the biggest,
single determining factor impacting the market,'' says a report by the Natural
Gas Supply Association scheduled for release today.
While not making a specific price prediction, the group, which represents
natural gas producers and marketers, says in its annual heating outlook that
the combination of a strengthening economy, expectations for a colder winter in
the East and flat production will likely offset higher-than-usual inventories
to boost prices.
Like in the oil markets, tight supplies for natural gas mean any hints of
disruptions have the power to spark skyrocketing prices. Wednesday, investors
reacted to news that production continued to be stymied in the Gulf of Mexico,
home to about a quarter of total U.S. natural gas output, after Hurricane
Ivan.
The Minerals Management Service said Wednesday that more than 1.2% of annual
natural gas production in the Gulf has been lost since Ivan blew through on
Sept. 11; 2% of annual oil production in the Gulf has been lost.
The price of a barrel of crude oil fell 39 cents to $49.51 Wednesday after a
government report showed an unexpected rise in U.S. oil inventories and reports
suggested a cease-fire among warring factions in oil-rich Nigeria.

 Dow Chief Says No New U.S. Plants Will Be Built, Cites Natural Gas Prices
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Sep 25 - Charleston Daily Mail -
 
DAILY MAIL BUSINESS EDITOR
Dow Chemical Co. will build new plants, but not in the United States, the head
of the company said.
That's because energy costs are lower overseas, said William Stavropoulos,
chairman and chief executive officer. His comments came on CNBC's "Kudlow &
Cramer."

Show co-host Jim Cramer asked Stavropoulos how the chemical industry has gone
from being a "terrific trade surplus generator to being almost deficit."
Stavropoulos replied that the industry once had a positive balance of trade.
"(But) that's been wiped out over the last three years because, really, of an
ill-conceived energy policy or no energy policy where you encourage natural gas
usage but you discourage exploration and production," he added.

Stavropoulos said natural gas prices have increased from $2 to about $5 per
million British Thermal Units. This makes it difficult for plants along the
U.S. Gulf Coast to compete with plants abroad. "So the strategy here and what
we've been employing is to move towards low feedstock cost areas so we can
supply the growing markets of the world," he said.

Stavropoulos said Dow is not abandoning its export markets. "What we're doing
is, new builds are going to be taking place outside the United States where we
have a better energy situation, like the Middle East or in Asia, so we can
supply those growing markets and we'll supply the Americas from our
manufacturing base here," Stavropoulos said.

"What's going to happen is that U.S. used to be a very good place to export
product and now it's not going to be," he said. "So the exports are going to be
absorbed by other manufacturing facilities in other countries."

A video of the interview is posted on Dow's Web site, www.dow.com.

West Virginia exported $1,072,380,202 worth of plastics and chemicals in 2003
- up about 7 percent from 2002, according to the West Virginia Development
Office.

Allan Fowler, vice president and site leader of Dow's West Virginia
operations, said he did not immediately have data at hand about Dow exports
from West Virginia. However, "We make 500-plus products at this site and
they're used all over the world," he said.

Stavropoulos' comments are similar to remarks Fowler made in March.

Fowler told a meeting of Kanawha Valley chemical company executives and
employees that because of high natural gas prices in the United States,
chemical production is rapidly shifting abroad.

Because the chemical industry uses natural gas both as a fuel and a feedstock,
"energy has a profound impact on our industry," Fowler said. "As goes natural
gas, so goes the chemical industry."

Fowler said then that during the first three months of 2004, Dow's utility and
energy bill was up $300 million from 2003. Natural gas costs $5 to $6 per
million BTUs in the United States but costs only 40 cents in North Africa, 75
cents in the Middle East and $4 in Europe, he said.

On Tuesday, Fowler said, "It's all still very real."

Regarding higher energy costs, Fowler said, "an update would be that for the
year to date, that number is now in excess of a billion dollars. That's the
difference in our hydrocarbons and energy costs vs. a year ago for Dow
worldwide.

"I think that for natural gas, we're showing $6 for the third quarter, so all
of the earlier quotes for gas between $5 and $6 still apply. In fact, it's at
the high end of that range."

During his March speech, Fowler asked, "If raw materials are 40 percent to 50
percent of your cost of doing business, where do you think manufacturing is
going to go?"

He said then that millions of U.S. jobs have been lost since mid- 2000 and
"every time there's a spike in natural gas prices, industrial production in the
United States takes a hit."

Fowler pointed out in March that Congress had not approved an energy bill - a
situation that is unchanged today.

Fowler said in March that there are some West Virginia-specific issues, like
asbestos lawsuits filed by people who don't live or work here. "If we, Dow,
have 180 locations around the world and have a dollar to invest, help me
understand why we would invest it in West Virginia," he said.

Contact writer George Hohmann at business@dailymail.com or 348- 4836.
 

Ken Piers

"Everything should be as simple as possible - but not simpler." A. Einstein