US faces potential energy crisis By Robert Corzine and Hillary Durgin Published: August 13 2000 16:27GMT | Last Updated: August 14 2000 02:35GMT Winter may not be on the minds of millions of Americans in the middle of their annual summer migration. But to those responsible for delivering the energy that has sustained the US's remarkable economic expansion of recent years, winter is just around the corner, and it is causing more than a little concern. For the first time in several decades the words "energy crisis" are being bandied about by US and natural gas executives, amid mounting evidence that the ability of the US energy supply system to meet potential demand this winter is increasingly problematic. Last week world crude oil prices once again surged past the politically sensitive $30 a barrel level after reports that US petroleum stocks had fallen to their lowest levels in 24 years. The bullish sentiment on oil markets was reinforced by evidence that the Organisation of Petroleum Exporting Countries is keen to maintain current high prices in spite of recent signals in Saudi Arabia - Opec's dominant member and the world's biggest oil exporter - that it would raise output to moderate prices. Bill Richardson, the US energy secretary, condemned the visit to Iraq last week by president Hugo Chavez of Venezuela, one of the leading oil suppliers to the US, during which Mr Chavez and President Saddam Hussein defended current oil price levels: ". . . it is unhelpful that governments are trying to talk up the price of oil in ways that would harm economic growth," Mr Richardson said. But it is not just the state of the crude oil market that is worrying Washington. US stocks of refined products such as heating oil are also low. Last week the Paris-based International Energy Agency, the west's oil market watchdog, said there was a question as to whether US refining profit margins over the next few months would be ". . . sufficient to encourage refineries to maintain refinery production to meet winter heating oil demands". But the problem is even more widespread. As the US heads into winter, the combination of lower than normal natural gas supplies in storage and early forecasts of a normal winter (the last three have been the warmest on record) could strain the country's gas transmission system. The American Gas Association recently warned of possible price spikes for natural gas, the wholesale price of which has already doubled over the past year. "We're looking at the tightest winter supply situation we've had since the 1970s," said Ronald Barone, natural gas analyst with PaineWebber, the New York brokers. Analysts differ as to whether an actual shortage is looming: "If we do have a normal winter, there will be enough gas to go around," said Mr Barone. However, because of the tight supply situation, "you will see some businesses having to switch to other fuels and you will see some businesses closed". Business and industrial customers who have interruptible gas supply contracts could see their supplies cut off when cold weather increases demand on limited supplies. On especially cold days, gas prices could rise to as high as $6 a thousand cu ft on the spot market from the present level of around $4, making gas purchases prohibitive for some businesses. Mr Barone estimates that on November 1, natural gas in storage will total 2,600bn cu ft. That compares with a "comfort" level of about 3,000bn cu ft. It is the low level of stored gas that worries some analysts, who say there are few possibilities in the short term to boost natural gas deliveries, either through bringing new domestic reserves onstream or increasing imports of liquefied natural gas. Part of the reason for the low storage levels is related to the 22,000MW of nuclear capacity scheduled to be unavailable due to routine maintenance in September. So gas that might have been used to fill storage facilities will instead be diverted to generate electric power. Winter is not the only natural event that could threaten the US energy supply system. The hurricane season - from mid-August to the end of October - is entering its most active phase, and federal forecasts suggest this season will be slightly above average. Any storms which do enter the Gulf of Mexico could force the closure of the offshore oil and gas production platforms which account for a large percentage of total US domestic production. Hurricanes can also disrupt the unloading of crude oil imports, while any hurricanes that actually make landfall in the region could disrupt a large part of the country's refining capacity. "Oil stock levels mean the US is very vulnerable, and any damage to production facilities could add to the squeeze on products, such as heating oil," says Lawrence Eagles, analyst at GNI, the commodities broker. Additional reporting by Paul Solman in London _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
