Williams exec says high natgas prices hurt demand

By Andrew Kelly HOUSTON, April 2 (Reuters) - High natural gas prices could prevent the clean-burning fuel from making widely predicted gains in the U.S. electricity generation sector, a senior U.S. energy industry executive said on Monday.

"If we continue to see $5 and $10 gas prices over any extended period of time, the likelihood that natural gas will capture the market opportunities that are presented is remote," said Bill Hobbs, president of energy marketing and trading at Williams Cos. Inc. , a major gas pipeline operator.

Tight supplies of natural gas pushed benchmark U.S. prices to a record high of $10 per thousand cubic feet last December and while prices have since retreated to around $5, they remain almost twice as high as a year ago.

"I think a healthy gas price is in the $2.50 to $3.00 range," Hobbs told reporters after addressing the Ziff Energy North American Natural Gas Strategies conference in Houston.

The U.S. natural gas and electricity industries have long assumed that the economic and environmental advantages of modern combined cycle gas turbines will lead to a growing market share for natural gas in power generation.

But Hobbs said they might have to rethink projections of natural gas seizing over a quarter of the U.S. power generation market by 2010, compared with some 15 percent at present.

High natural gas prices have already led to renewed interest in coal, which accounts for about 52 percent of U.S. power generation, and could also lead to a reappraisal of nuclear energy, which had been virtually left for dead, he said.

INVESTMENT NEEDED TO BOOST SUPPLIES

Hobbs said it was vital for the U.S. natural gas industry to invest in the development of new natural gas reserves, pipelines and storage capacity to stabilize prices at lower levels and safeguard long-term growth prospects for gas.

In the short to medium term, he said, additional gas supplies would have to come from areas such as the Gulf of Mexico, the Rocky Mountains and Western Canada.

It would take at least 7 to 8 years to tap huge but remote gas reserves in Alaska and Arctic Canada and bring it to U.S. markets by pipeline, he said, adding that he saw only a limited role for imports of liquefied natural gas (LNG) in meeting U.S. demand, despite a recent revival of interest in LNG projects.

Craig Chancellor, head of regulatory affairs for independent power producer Calpine Corp. , told the conference that he expects U.S. natural gas prices to remain in a range of $4 to $5.50 for the next five years. Calpine relies almost exclusively on gas to fuel its power plants.

Bill Transier, Chief Financial Officer of independent oil and gas producer Ocean Energy Inc. said North America had sufficient reserves of natural gas and that the industry can meet growing demand as long as it is granted access to some of the federal lands currently off limits for drilling.

The industry would also have to work hard to improve its standing with investors and financiers so that it could raise the hundreds of billions of dollars that it would have to invest to boost reserves and production, he said.

Mark Gabriel of the Electric Power Research Institute, said distributed power -- microturbines or fuel cells that generate power where it is needed -- could soon start to erode demand for traditional centrally generated power, especially when it came to high-tech companies that place a high premium on reliability.

"For some of the major players in the Internet industry, the need for high quality, high-reliability power at any cost far outstrips their concern about short-term price fluctuations," he said.

Gabriel also predicted that within five to seven years high natural gas prices would lead to a new nuclear power plants being ordered in the United States, something which he said would have been unthinkable just 12 months ago.

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-- Martin Thompson (mthom1927@aol.com), April 03, 2001