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With natural gas prices on a tear, residential consumers and manufacturers are feeling squeezed. Sky-high prices -- the result of soaring demand from harsh winter weather, aging gas wells, and a drop in imports from Canada -- have sent at least one small chemical company into bankruptcy. The doubling of prices over the past year also has hit consumers, since more than half of the U.S. homes rely on natural gas. As a result, producers are clamoring for Washington to do something to alleviate the squeeze (see BW, 6/16/03, "Is the Natural Gas Crunch About to Become a Crisis?").
Without an increase in supply, the industry argues, prices could soar even higher, hurting manufacturers -- and the economy -- even more. And gas producers aren't the only ones worrying. Federal Reserve Chairman Alan Greenspan recently expressed concern to lawmakers about the price spikes.
On May 27, BusinessWeek Reporter Laura Cohn spoke with J. Larry Nichols, chief executive at Devon Energy (DVN
), the nation's largest independent oil and gas producer, about why natural gas prices have soared so high so fast, what Congress should do to fix the problem, and what will happen if policymakers continue to ignore the issue. Edited excerpts of their conversation follow:
Q: What's behind the rise in natural gas prices?
A: Demand has been going up, and supply has been constrained. When any environmentalist wants to try to stop [new exploration] areas for natural gas, they've been successful. We have more restrictions on where we can drill for natural gas in the U.S. than anywhere in the world. Sooner or later, there's a price for that.
Q: Won't the price get even higher if we have a hot summer, as the National Oceanographic & Atmospheric Administration expects? And what about this winter?
A: Are people going to be freezing to death this winter? No. Are they going to pay a higher energy bill? Yes. I have no idea what the weather's going to be. There will never be any shortages, but the price will rise to such a level that it will ration the supply in a prudent manner.
Q: Are there any short-term fixes Washington can enact now to avoid resorting to rations, as you call them?
A: Short term, not really. It takes a while to drill natural gas wells and to build pipelines. It's not a question of opening up new pristine areas. It's more a question of allowing the industry to explore in areas where we have explored for natural gas for decades without any environmental harm.
Q: That's more of a long-term solution. What else would you like to see that will help the problem over the long run?
A: Going forward, what I hope happens is that our political leaders are able to establish a more rational balance to, on the one hand, protect our environment and make sure all exploration is done in an environmentally sensitive way, and on the other hand, ensure we have adequate supplies of natural gas.
We really haven't struck that balance over the last decade because the public and the politicians haven't seen any need. But now that prices are going to stay relatively high, Congress is being approached by a variety of industrial users that are pointing out that the high price of natural gas is causing them competitive problems.
Q: Are these pleas being heard? The energy bill Congress is debating doesn't address this issue.
A: There are a few things in [the bill] that will help. But the fundamental problem of access isn't really dealt with. The political will isn't there. The political will is to continue to restrict areas. It will remain that way until people realize that if they want to continue to restrict where we can drill for natural gas, prices will continue to go up.
Q: So if the political will isn't there, what do you do?
A: What happens is very clear. Prices will go up, and chemical plants, fertilizer plants, and other industries will shut down in the U.S. We'll export those jobs outside of the U.S. -- where they have cheaper energy.
Q: But green groups argue that opening up new lands to drilling will hurt the environment. What's your response?
A: The issue is allowing us to continue to drill in areas of the U.S. that we've been exploring in for generations -- such as the Powder River Basin in Wyoming, for example. Devon has been very active there. It's a mature area, where oil wells have been producing for decades and decades, but there are new restraints that restrict our ability to explore for natural gas.
I could give you a long list of areas where we've been producing natural gas for 50 years. There are restrictions that aren't based on good science -- they're based on emotion. No thoughtful person wants to open up Yellowstone National Park for drilling. That's sheer nonsense. It's allowing the industry to explore for natural gas in areas where we've been for generations.
Q: Given how much prices have risen thus far, there could be a political price. How worried should the Administration be about this?
A: All of government should be worried -- both the Administration and Congress. It's a serious situation. We're going to have high energy prices until we strike a more rational balance between our legitimate need to protect the environment and our legitimate right to have reasonably priced energy.
Edited by Patricia O'Connell
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