Natural gas fuels California summer woe

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The Fresno Bee

Natural gas fuels summer woe

By Mark Grossi The Fresno Bee

(Published March 29, 2001) The winter natural gas crisis may seem to be melting away in the spring sunshine, but it is alive and well connected to your summertime electricity nightmares.

Natural gas took the public spotlight in December when its prices suddenly soared, driving up home heating costs.

The Assembly this week is taking a hard look at why prices spiked and who was responsible.

But natural gas is not just a winter fuel. Expect it to play a major role in keeping your electric air conditioner running this summer.

Why? It is the clean-burning fuel of choice for many large power plants, accounting for more than one-third of the electricity generated in California. Natural gas shortages equal electricity problems.

Indeed, even if the state had enough power plants to produce the electricity it needs, California would still have to deal with a scarcity and high price of natural gas, says engineering professor James Sweeney of the Stanford Institute for Economic Policy Research.

"It's in a boom-and-bust cycle that probably will take two years to correct," Sweeney said.

Which brings us to the real mystery of natural gas. Why would it take two years to bring the supply in line with demand? What caused the supply problem?

It takes six to 18 months and millions of dollars for energy companies to locate natural gas, drill and bring it to markets. So two years is an estimate on how long it will take to fix the problem -- a problem that affects the whole country, not just California.

But it also took years for the supply problem to develop. It started in the mid-1990s when oil prices dipped, making exploration a risky investment. Jane Woodward, president of Mineral Acquisition Partners Inc., said oil and natural gas exploration, which often occur simultaneously, stalled because companies didn't know if they could make enough money.

"Drilling reached an all-time low," she said. "And people are still afraid to go full bore. Everybody was surprised at how far the price climbed, and companies are still being careful."

The boom-and-bust cycle was set in motion when natural gas became a deregulated energy in 1985 and market forces began determining its price. For years, Californians have been paying the deregulated cost of natural gas, which is responsible for that spike in heating bills. The natural gas bill should come down somewhat this month, experts said, but the cost is still above the historic average.

Several forces combined to make the cost unexpectedly spike. The demand for natural gas has increased. Natural gas-fired production plants cranked out more electricity and used a lot more natural gas than they normally would have, so market prices reacted by shooting up.

One way to cope with fluctuations, shortages and high costs would be to develop more natural gas supplies in the state.

State lawmakers may consider streamlining of environmental procedures as part of a few proposed laws to address the natural gas shortage. No actions have taken place on the proposals.

But if nothing changes, experts said companies may continue to find it too expensive to explore for natural gas in California, which has 40% less production than it did 16 years ago.

Natural gas use has risen continually through the 1990s. It is the cleanest, most efficient fossil fuel, and the United States imports only about 15% of its natural gas as opposed to oil imports of about 50%. Most of the imported natural gas comes from Canada.

"Natural gas is the leading fuel for power plants now," Woodward said. "It has double the efficiency of coal."

More local sources of it would make the future more stable, said John Castagna, director of the Institute for Exploration and Development Geosciences at University of Oklahoma.

"People think it's an environmental problem to have offshore drilling for natural gas," said Castagna, who worked more than 15 years in the energy industry before moving into academia.

"It can be done in a way that is not an environmental problem, but California's off-shore possibilities are off the map because of environmental restrictions and other costs."

The reporter can be reached at mgrossi

@fresnobee.com or 441-6316.

http://www.fresnobee.com/print/storynews/0,1737,252901.html,00.html

-- Martin Thompson (mthom1927@aol.com), March 29, 2001


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