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Wednesday, January 24, 2001
High gas prices dangerous, if not fatal, to some industries
Seeing Bush as sympathetic, businesses are asking him to intervene
By Ryan Alessi
Scripps Howard News Service
After 61 years of forging steel, Benedict-Miller Inc. in Lyndhurst, N.J., is shutting down its furnaces.
"The energy bills just put it over the top," said John Benedict, the company's president.
After his natural gas contract expired in September, he was forced to pay nearly three times as much on the daily spot market. And with seven other competitors in a 50-mile radius, it wasn't economical to keep it up, he said with a sigh.
Though the company will keep its steel service center, 21 employees lost their jobs.
"This is just the beginning," Benedict said. "It's killing everybody in this business."
A year of rising natural gas prices has many American businesses feeling the pinch. While prices are expected to level off somewhat, industry and energy analysts are calling for the Bush administration to take action.
Natural gas costs for American companies have gone up 139 percent on average since last year, according to a National Association of Manufacturers survey.
Jerry Jasinowski, the association's president, said he has begun meeting with administration officials, including Treasury Secretary Paul O'Neill, about stabilizing the energy market that is hurting companies' bottom lines.
Jasinowski is aggressively pushing two remedies - a $115 billion tax cut for businesses and consumers, and opening of federal lands to drill for more natural gas and oil.
Drafting a strategy that encourages new exploration and energy efficiency, he said, is the best way to prevent astronomic energy bills. Regulations enacted during President Clinton's administration, such as closing off federal lands to drilling, ran counter to those goals.
A former oil executive, Bush is regarded as sympathetic to business and the energy industry in particular. Throughout his campaign for presidency, for example, Bush alluded to tapping oil reserves, including Alaska's Arctic National Wild-life Refuge. Environmental groups and many others uniformly oppose drilling in the pristine wilderness area.
Ken Lay, president of Enron Corp., and a member of Bush's energy transition advisory team, said roughly 15 percent of prospective natural gas reserves are on federal lands and must be tapped. Nearly half of the known reserves in western states are on protected land.
"It's very difficult to develop new supplies if you can't get access to where those new supplies are," he said. "That's about five or six years of supply just in the West."
In the meantime, he said natural gas prices for the spring appear to be dropping from stratospheric heights. Industry projections estimate that they could sink as much as 35 percent in two years.
So far, the big winners in the natural gas sweepstakes have been energy producers.
"The beauty about gas is you can sell it, you can generate electricity with it, you can store it or you can trade it for electricity," said Thomas Capps, chairman of Dominion Resources, which produces and distributes electricity along the East Coast. Dominion also drills for natural gas to store and sell.
Capps wants the Bush administration to allow more drilling. The country consumes 22 trillion cubic feet of natural gas per year. By 2010, the figure is expected to grow to 30 trillion cubic feet. "We'll be OK until then," Capps said. "But after that it'll get real tight."
What does all this mean for the economy?
Jim Barrett, environmental and energy economist with the Economic Policy Institute, said the economy can endure high energy prices.
The biggest fear, he said, is if high costs start spreading from industry to industry. For instance, if brick and metal manufacturers begin charging construction companies more, then the manufacturing and building industries would be in trouble.
"I don't know that we're going to see them drop like flies," he said, "but we're certainly going to see some belt tightening."
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