FocusEnergy outlook in US grows dire

17 October 2007 23:30  [Source: ICIS news]

By John Waggoner

HOUSTON (ICIS news)--Energy demand will outpace new capacity in the US during the next ten years, industry forecasters said this week, raising concerns in the chemicals industry over feedstock supplies and energy costs.

The latest 10-year forecast by the North American Electric Reliability Council (NERC) released on Tuesday said demand is growing at more than twice the pace of new supply and could lead to shortages in a few years.

“The NERC report is still more evidence that Congress needs to develop a comprehensive energy policy – and soon,” said American Chemistry Council (ACC) president Jack Gerard on Wednesday.

The US chemical and petrochemical industry is heavily dependent on natural gas as feedstock, while electricity – generated in part by thermal power generation using natural gas fuel – is also an important price component.

The NERC keeps watch over the reliability of bulk power systems in the US and some regions of Canada.

The power industry will increasingly rely on natural gas in an effort to keep pace, the report suggested. That scenario will add to pricing pressure on natural gas and put further pressure on manufacturing, NERC spokeswoman Kelly Ziegler said on Wednesday.

“Utilities and manufacturers are already locked in a ‘zero sum game’ for scarce US natural gas supplies, and we’ve witnessed the damage this does to US manufacturing production, jobs and competitiveness,” Gerard said.

One solution to the problem is liquefied natural gas (LNG), which can be imported to the country via tanker.

Although LNG cannot be used as petrochemical feedstock, it can help meet demand from power plants and industry, freeing up more domestic natural gas for cracking.

However, strong popular opposition to the siting of LNG terminals could ultimately limit the number of facilities that will in fact be built. Consequently, public opinion could compromise the ability of the US to greatly increase LNG imports.

Relying on LNG to meet growing power and manufacturing demand for natural gas will also open the US fuel supply to the global market, raising concerns that the natural gas market could fall prey to the same kinds of economic and political risks the US already faces with oil, the NERC report said.

There are additional risks of interruptions to the supply chain from weather events affecting LNG shipments, such as hurricanes in the US gulf.

The US has reserves of natural gas which are currently off-limits to exploration and production due to a 26-year-old congressional moratorium. The moratorium encompasses 85% of US outer continental shelf (OCS) regions including the east and west coasts, parts of the eastern Gulf and the long Alaskan coast.

Some petroleum industry sources think that with advances in technology currently available, new surveys of potential reserves could well indicate much more gas offshore than previously believed.

Congress has not taken any serious move to lift the ban, despite mounting public pressure to permit drilling in the offshore areas, especially in the face of rising oil prices.

“Without more domestic supply [of natural gas], things will go from bad to worse for manufacturers and consumers alike,” Gerard said.

Regarding increasing access to US offshore energy resources, Ziegler said that “NERC is not in a position to specify to policymakers one solution or another to the energy problem.”

However, Ziegler did note that the NERC report urges government officials to address policy matters and obstacles to developing new gas supplies and delivery systems, including construction of LNG terminals.

“We are hopeful that this report acts as a last-minute wake-up call for policymakers who must act now to address the crisis. This issue belongs near the top of Congress’s agenda,” said Gerard.

(With additional reporting by Joe Kamalick in Washington, DC)

By: John Waggoner
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