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natural gas prices set to soar The other gas is going up in price

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

It's time to start fretting about the price and availability of gas.

No, not gasoline. You're probably plenty adept at worrying about that fuel without our encouragement.

Instead, let us boost your nervousness about a commodity you're probably not thinking about much in this week of 80-degree-plus weather -- natural gas.

About January or February, you may be noticing that natural gas has gotten more expensive -- a lot more. Steve Reynolds, chief executive officer of regional utility Puget Energy, says gas prices could approach $8 per million British thermal units (Btu) this winter, about quadruple the price of just a few years ago.

Ratepayers of this region would feel the full brunt of that increase only if Puget bought all of its gas as it needs it -- which it doesn't. Puget does make some spot-market purchases, but it also has long-term contracts, some at fixed prices, some with clauses to allow for adjustments.

Still, the price is definitely going up because of some short-term trends -- increased demand for gas to heat homes, run businesses and generate electricity, production that hasn't kept pace and the increased price for oil, which in some markets competes with natural gas.

Some short-term factors can alleviate the demand-supply price crunch -- a particularly mild winter over much of the country, for example, or a recession that cuts industrial demand.

But the long-term trend line isn't favorable for supply or price. Says Reynolds, "The primary problem for Puget as well as, frankly, all of North America is gas supply, where it's going to come from."

Reynolds has multiple reasons to think about this; he also runs an electric utility that depends on natural gas as a fuel to generate power. Natural gas continues to be attractive for new generation for its price and relatively benign environmental profile (compared at least with coal and nuclear), but if it remains at astronomical prices, "I don't know what we're going to do for electric generation."



The easy answer is to say, "well let's get more," but as Reynolds observes, "There's not a lot of natural gas close to where the markets are."

There is one place that has a lot of gas, but it's nowhere close to the markets. Even so, a lot of people are interested in linking the place where the gas is with the place the gas might be used, and that has some big implications for the Seattle region in several respects.

That place is the North Slope of Alaska.

Although better known for its oil production, the North Slope has a lot of natural gas, too. The debate is whether it can be moved to the Lower 48 by pipeline, by what route and who would build and operate the line. One proposal calls for a gas pipeline to follow the route of the oil pipeline south to about Fairbanks, then east into the Yukon and south toward the American Midwest.

Moving Alaskan gas to the Midwest wouldn't seem to do utility customers in the Northwest much good, and Reynolds says at best Alaskan gas may only help to offset expected declines in Canadian fields. But Alaskan gas would still be useful in helping to dampen volatility in the U.S. market, he adds.

Provided, of course, that that's where the gas winds up. There's another proposal to run a gas pipeline from the North Slope to Valdez, where it would be converted to a liquid form and sent ...

Well, where? "It would not help us at all unless LNG would be delivered in North America," Reynolds says.

The siting of new LNG terminals on the Pacific, Atlantic and Gulf coasts, along with the attendant controversies, promises to be an even bigger issue than construction of an Alaskan gas pipeline. Alaskan LNG could go to some other energy-thirsty nations. Or it could go to a West Coast terminal. A California Energy Commission report on proposed West Coast LNG terminals at which gas would be imported, includes plans for such facilities at Prince Rupert and Kitimat, B.C., and St. Helens, Ore., on the other side of the Columbia River from and north of Vancouver, Wash.

Whatever does get built in Alaska, the Seattle area could still benefit. The gas itself may not find its way here but the money spent to build the pipeline certainly will, what with all the stuff that will be made, bought or shipped through this region, notes Dave Gering, executive director of the Manufacturing Industrial Council of Seattle.

Every energy source winds up being the source of controversy as to its cost, its availability, its environmental effects and its regulation, so it's no shock that natural gas is about to get its time in the spotlight (again). However shocking the bills may turn out to be this winter, we can at least console ourselves that this problem, like so many others, will eventually be resolved. We'll be able to heat our homes with the gas that Alaska ships to the Lower 48 -- or maybe we can burn the money Alaskans will be sending us to build a pipeline to send the gas to someone else.

P-I reporter Bill Virgin can be reached at 206-448-8319 or [email protected]. His column appears Tuesdays and Thursdays