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Situation: Critical
By: Jennifer Scott Cimperman
from the Plain Dealer

COLUMBUS - Consumers can keep their household thermostats at a comfy 70 degrees this winter, but they’ll pay through the nose for it, natural-gas executives said yesterday.

At a daylong conference in Columbus discussion focused on supply described as tight but adequate and surging demand, which is expected to keep prices high through spring.

Since last year, the price of natural gas has climbed from about $2 per thousand cubic feet to more than $5. Dominion East Ohio, formerly known as East Ohio Gas, expects prices to top $7 by November, raising the average customer’s bill by about $70 per month during the coldest months of the year.

“I think we have a short-term critical situation, especially for consumers with low or fixed incomes,“ said Ohio Gov. Bob Taft, who sponsored the conference with the Interstate Oil and Gas Compact Commission, made up of governors from 37 states that produce oil and natural gas. Taft was joined yesterday by Alaska Gov. Tony Knowles, who is promoting construction of a pipeline linking Alaska’s abundant natural-gas reserves with the Lower 48 states.

“I wouldn’t call it a crisis today, but it is critical in the short term,” Taft said of high natural-gas costs.  Among the factors causing prices to rise:

Increased demand from consumers. While the last two winters were mild, temperatures this year are expected to return to about normal. In Ohio, that means about 35 degrees on average in December, January and February, according to the Climate Prediction Center of the National Weather Service.

Increased demand from electric utilities. In an effort to supply enough electricity for America’s booming economy, electric utilities are building new power plants powered by environmentally friendly natural gas instead of coal or other fuels. In Ohio, 12 such plants are planned. In the western United States, 50 new plants will be powered using less natural gas.

Less seasonal change in demand. In preparation for the winter months, natural-gas companies typically bought and stored natural gas in the summer months, when gas was cheap and supplies plentiful. With increasing demand year-round from electric power plants, “the seasonal nature of gas demand [has] already begun to change,” said Stephen Baum, chairman of California-based Sempra Energy, which serves 9 million customers. “The production of electricity clearly is a high priority.”

Production lag times. It takes 12 to 18 months for natural gas to make it from a freshly drilled well to pipes leading to homes and businesses. While drilling has increased to meet demand, new wells won’t ease tight supplies this winter.

Many of the 20 speakers at yesterday’s conference pleaded for federal support to drill areas of the West and East coasts, Gulf of Mexico and Rocky Mountains that now are off-limits due to environmental restrictions or other federal mandates.

But they also asked the government not to adopt price ceilings or other measures to ease the natural-gas crunch. If the government enacts price ceilings, for example, executives said companies will have less incentive to drill new wells, possibly causing demand to outstrip supply.

“There’s definitely supply available,” Knowles said, noting 36 trillion feet of natural gas waiting to be tapped in Alaska’s underground wells. “We have to allow the market to respond.”