March 30, 2001

Expert: Gas supply can’t meet demand By Benjamin Adams Odessa American

MIDLAND — Increasing demand for electricity will keep natural gas prices soaring, and consumers will find themselves paying even more for utility bills.

Billy Munn, president of Navajo Gas Services in Midland, presented that message to more than 40 natural gas producers Thursday. Munn presented his speech, titled "The Spark Spread," at the regular monthly meeting of the Natural Gas Producers Association at the Petroleum Club in Midland.

"The spark spread" is basically the term used to describe the relationship between natural gas prices and electricity prices.

"We’re either going to be warm this summer or cold next winter," Munn said. "If we have a cool summer, we might escape through it — (we) meaning consumers and the administration."

Higher natural gas prices are welcomed by gas producers in the area because they have had few incentives in recent years to drill for natural gas.

But that’s just one reason why prices for gas are likely to keep rising in upcoming months.

"The growth and appetite for the gas to generate electricity appears to be growing at a rate that’s going to outstrip the supply," Munn said.

It’s not that there’s not enough natural gas to meet the increasing demand, Munn said; the problem is the market does not have the capacity to supply enough natural gas. Summer is typically the time when demand for natural gas is at its lowest point.

As more natural gas-fired plants are built to meet a growing demand for electricity, the amount of natural gas that is normally set aside during the warmer months will be used by the electric industry to meet peak demands for power.

Most "peaker" plants are typically natural gas-fired and only go online when needed — such as when temperatures soar above 100 and it seems like everyone is turning on their air conditioners.

"The electricity is going to tell us a lot about how these prices go," Munn said. "What’s different about today and five years ago is electricity demand, which uses (natural) gas to generate electricity."

Munn said more natural gas-fired power plants, like the Odessa-Ector Power Partner’s Plant, are in demand because they operate more efficiently and use less natural gas than older plants.

And while states like California have seen wild spikes in utility bills, Texas is not likely to experience the same because Texas has a surplus of electric power available.

Texas may see an influx of companies from California looking to find a place with reliable energy supplies.

But Texas’ Achilles heel may be the reliance on natural gas fired power plants to meet demand, Munn said. There has to be enough natural gas to meet consumer demand, meet the power industry’s demand and enough to store for colder weather. According to Munn, all three can’t be done without a reduction in use or demand.

"The new power’s all gas-fired, and now the question is do you have enough gas to do that or at a price that’s reasonable? If not, what do we do?" Munn said.

Unlike natural gas, electricity can’t be stored during off-peak times. The instant it’s produced it’s consumed.

If usage subsides, the economy slows down and the country has a mild summer, then natural gas prices won’t increase and consumers won’t have high bills, Munn said.

"You gotta find more and use less," Munn said.

But that’s not likely to happen.

Munn also attributed the current slowdown in the national economy in part to the rising costs of energy.

"And that’s the one thing that’s troubling about this in an information economy, because you gotta have electricity, and it needs to be reasonably priced," he said.

The problem will likely receive a lot more attention.

"What you’re going to see in the next six months is a lot of discussion about where we are and what we’re going to do," Munn said. "This is why this administration is so serious about it.

"This is a very important issue for the administration. That’s why (Bush) has (Dick) Cheney and (Don) Evans and that whole staff. There’s not an easy solution to this.

His message was well received.

"He’s right. Iit’s going to be an interesting year," Kevin Sparks, vice president for Discovery Operating, said after the meeting.

http://www.oaoa.com/news/nw033001b.htm

-- Martin Thompson (mthom1927@aol.com), April 01, 2001