High Oil and Natural Gas Prices Shine Spotlight On Alternate Reliable Energy Supply Sources

---

Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Natural gas transmission and storage project development should show significant signs of life as energy companies look to increase natural gas supply. Natural gas prices have spiked to highs not seen since the energy crisis of 2000. Last week, Henry Hub natural gas was being traded in the $9-10 per million Btu range. Currently, prices are down to a still high $7 per million Btu range. Spot gas on the gulf coast has reached as high as $24 per million Btu.

If natural gas stays at these price levels for an extended period of time it will cause temporary production curtailments and unit shutdowns at petrochemical plants across the country. Dow Chemical recently announced it was closing two Gulf Coast ethylene plants. Fertilizer and Ammonia producers have steadily closed plants since the last energy crisis because of the high cost of natural gas.

Just as in 2000, we expect to see a resurgence in industrial project activity to shore up natural gas supply, as well as to promote energy conservation. Power projects utilizing alternate stable fuel sources to oil and natural gas, such as coal, nuclear, and green energy will be dusted off.

Natural gas is the fuel of choice for new generation projects commanding the majority of new construction over the past few years. 2003 is witnessing a record year for new natural gas fired power plant construction and as these new plants come online we will need steady and reliable sources of natural gas to supply them.

The lack of new large natural gas exploration and production sources in the lower 48 states will hinder the security of future US electricity production. One long-term solution is to develop artic natural gas sources. Natural gas reserves in Alaska and Northwest Territories McKenzie Delta could provide North America with an abundant and secure supply of natural gas for decades. However, environmental concerns will delay development for years to come. The Alaska Highway Pipeline Project could bring 4 Bcf to the market; however, the $10-$16 Billion price tag is prohibitive and neither this nor the Northwest Territories Mackenzie Delta Pipeline projects could be brought online before 2006/2007.

There are also significant untapped natural gas reserves in offshore Nova Scotia, with reserve estimates ranging from 18 to 50 Tcf. El Paso (NYSE:EP)(Houston, Texas) is planning the one Bcf per day Blue Atlantic pipeline project to tap Nova Scotia reserves. The $2.5 Billion project has a planned in-service date of late 2006.

Shorter term supplies could be achieved by expanding our LNG (Liquefied Natural Gas) terminalling and transportation infrastructure. Planned LNG projects could bring 4+ Bcf per day to market before the end of 2006.

Residential, commercial, and industrial consumers are reevaluating oil and natural gas usage, as both commodities have hit record highs recently. Natural gas prices hit three-year highs that haven't been seen since the winter of 2000. The resulting energy crisis was the culprit for West coast blackouts, and restricted industrial productivity for energy intensive West coast and Rocky Mountain region industries such as aluminum smelting. Crude oil prices hit ten-year highs after the U.S. government reported a big drop in winter heating fuel stocks.

Natural gas stocks also are nearing the critical level. Weather forecasters predict at least one more big winter storm, which will increase fuel usage even further causing another crisis situation, and continued high fuel costs.

Ultimately, it is the consumer who will pay for today's high fuel costs, as the price of electricity and goods produced from hydrocarbon fuel sources will eventually increase.