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Natural Gas Price Increase Creates Stress for Some Manufacturers

Posted on: Monday, 31 October 2005, 03:01 CST

By Kasey, Pam

Natural gas prices are up and continuing to rise. While the impact of the increase is unclear, its shape is beginning to emerge.

The price has doubled during the past year, closing on the New York Mercantile Exchange at under $6 per 1,000 cubic feet in September 2004 and about $12 in September 2005.

Although that won't translate directly to a doubling of prices for the consumer, prices will go up, according to Byron Harris of the state Public Service Commission's Consumer Advocate Division.

"Prior to hurricanes Rita and Katrina, actually, most of the natural gas utilities had requested increases anywhere from 16 to 30 percent over last winter's bills," Harris said. "The Katrina and Rita effect could easily add another 15 to 20 percent on those numbers."

The PSC establishes new rates Nov. 1 of each year, Harris said.

"We are proposing to the commission that they do look at the impact on consumers and limit the increases," he said. "We're hoping we can limit it to no more than 20 percent."

But industries that use natural gas have no advocate for protection against large price increases. Possibly hardest hit will be the chemical industry, which uses natural gas as a raw material.

The chemical industry grew rapidly in the U.S. because the price of natural gas liquids was below the equivalent price of oil, said Allan Fowler, vice president of West Virginia Operations for Dow Chemical Co.'s Union Carbide subsidiary.

"Since that is no longer true and in fact has flipped, natural gas is now more expensive to us than it is to competing countries around the world, our chemical industry is really hurt by that," he said. "I think if you look at the number of chemical plants that are being built around the world, virtually all of them are outside the U.S.," particularly in the Middle East, China and Malaysia.

During the coming five to 10 years, Fowler expects to see the U.S. become an importer rather than an exporter of chemicals.

West Virginia, "essentially the cradle of the chemical industry in the U.S.," is insulated slightly from these effects for a couple of reasons, he said.

The state's chemical industry burns cheaper coal rather than natural gas for steam, he said. And most of the chemical plants operating now in West Virginia produce specialty chemicals that are a little less sensitive to raw materials price.

But nationally, "it absolutely is a crisis," he said.

Over the medium term, Fowler said he sees importing liquefied natural gas as a possible partial savings for the nation's chemical industry, and states are fighting now over who will have an LNG terminal in their back yard.

Over the longer term, the U.S. is going to go back to more coal and more nuclear power for energy, he said, and that may apply to the chemical industry as well.

"We have technology that can take coal to chemicals. It's a matter of what's the price that makes that viable," he said. "We're talking 20 years to change an infrastructure, but the U.S. infrastructure was built because we had natural gas. If we now say we're going to be based more on coal and nuclear, the infrastructure would change."

Copyright State Journal Corporation Sep 30, 2005

Source: State Journal, The

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