Gas supplies down; prices up. May make Alaska pipeline feasible

Posted: Wednesday, August 23, 2000

FAIRBANKS (AP) -- A minor shift upward in domestic demand for natural gas has caused a major increase in prices and the four-month-old trend could continue, industry observers say.

The sharp price jump has sparked more gas line talk in Alaska than has been heard since Northwest Alaskan Pipeline Co. closed its Fairbanks office 13 years ago.

Gov. Tony Knowles said Tuesday that growing demand for natural gas in the Lower 48 means Alaskans will be building a pipeline within two years to ship North Slope gas southward.

''You've got a declining reserve base in the U.S.,'' said Jerry Halvorsen, president of the Interstate Natural Gas Association of America, a Washington-based pipeline owners group.

''The only place you've got vast reserves available quickly is Alaska,'' he said. ''Alaska is the only solution, really.''

The nation's natural gas production and consumption during the past six years have been relatively flat, the U.S. Energy Information Administration said.

The country produced an annual average of 18.5 trillion cubic feet during that period and used an average of 21.5 trillion, the agency said. The difference was made up mostly with imports from Canada.

Demand for natural gas is expected to grow to 30 trillion cubic feet within a decade, industry observers said.

Prices also have been relatively stagnant during that time. The average annual price at the wellhead wandered between $1.55 and $2.32 per thousand cubic feet, averaging $1.99.

But then, this June, the average price for the month shot up to $3.58 per thousand cubic feet.

The reason is just beginning to show up in statistics. Demand has risen -- not by much but enough to get people talking. Year to date consumption through the end of July shows that Americans used about 13.25 trillion cubic feet, or 2 percent more than at the same time last year.

''It's that roughly 300 billion cubic feet that is giving the system problems,'' said Bill Tradmann, team leader for natural gas analysis at the EIA in Washington, D.C.

Solving that problem won't be easy, according to industry representatives, and that means the long-term prospects favor a price that makes natural gas deliveries from Alaska possible.

''I think there's a sense that prices are going to stay above $3,'' Halvorsen told the Fairbanks Daily News-Miner.

A $3 price is considered the feasibility cutoff for a pipeline from Alaska's North Slope to the Lower 48, Halvorsen said.

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