Sept. 2000 Vol. 221 No. 9  Editorial

Thomas R. Wright, Jr.,  Editorial Director

Look out for soaring gas prices

In Houston, as this was written, temperatures were reaching past 100°F, which is completely normal. But prices for natural gas were equally high, reaching $4.50 per Mcf on several occasions, which is completely unusual. At the same time, most Americans are blissfully unaware that the winter just around the corner could hold some major surprises.

In fact, a recent Financial Times (FT) website article noted that the term "energy crisis" has been resurrected by U.S. natural gas company executives, and that there is mounting evidence that the country’s energy supply system could have problems meeting demand this winter. At about the same time, API reported that petroleum stocks had fallen to their lowest level in 24 years. This caused world crude oil prices to again zoom past $30 a bbl.

Compounding the bullish outlook for oil was an apparent OPEC view that high oil prices should be maintained despite Saudi Arabia’s announcement that it would raise output to moderate prices. Then there was the trip to Iraq last month by President Hugo Chavez of Venezuela, during which Chavez and Saddam Hussein defended current oil price levels. According to the FT, U.S. Energy Secretary Bill Richardson condemned the visit, saying, "It is unhelpful that governments are trying to talk up the price of oil in ways that would harm economic growth." Finally, the International Energy Agency has questioned whether U.S. refining profit margins are sufficient to encourage the heating oil production necessary to meet winter demand.

But we digress – it was the price of natural gas that prompted this discussion. And with lower-than-normal natural gas storage levels, plus a return to a normal winter (the last three have been among the warmest on record), the U.S. natural gas system could be stressed beyond breaking.

At a recent meeting in Houston, a representative of an eastern utility cited current, unusually high gas prices, then predicted that they could easily reach $6 per Mcf this winter. In the FT article, Ronald Barone, a natural gas analyst with PaineWebber, said there should be enough gas to go around, assuming a normal winter. But he added that, because of the tight supply situation, "you will see some businesses having to switch to other fuels and you will see some businesses closed." This means business and industrial customers that have interruptible gas supply contracts could see their supplies curtailed if cold weather boosts demand for these limited supplies.

In the Financial Times report, Mr. Barone estimated that natural gas in storage will total 2.6 Tcf on November 1, compared to a "comfort" level of about 3 Tcf. And it is this low storage level that worries analysts, who say there are few possibilities in the short term to boost natural gas deliveries. Like the utility spokesman above, the publication predicts that gas prices could reach $6 per Mcf on the spot market on especially cold days.

Another factor that could significantly impact gas prices in the short run is hurricane season in the Gulf of Mexico. Obviously, a storm entering the Gulf would prompt the shut-in of offshore oil and gas production platforms, which account for a large part of U.S. production. And any hiccups during this critical period, in which storage should be undergoing replenishment, could cause major disruptions later.

Just say no, Al. Because of their respective backgrounds as an independent oil producer and the head of an oilfield service company, we obviously expected candidates George W. Bush and Dick Cheney to be labeled "oily" by the general media. However, what surprised us is the amount of negative attention Ozone Al Gore, the darling of the environmental movement, is getting lately.

In case you missed it, hundreds of protesters marched to the site of the Democratic National Convention and chanted slogans against Occidental Petroleum and the Gore family’s investment in the company. They want Occidental to abandon its plans to drill on lands belonging to U’Wa Indians in Colombia. Gore’s father served on Occidental’s board, owned stock in the company and served as chief executive of a subsidiary before his death. His stock holdings passed to his family.

Vice President Al Gore now controls at estimated $500,000 worth of Occidental stock. The stock came from Armand Hammer, a deceased oilman with communist ties who served for decades as financial benefactor to Mr. Gore and his father, Sen. Albert Gore, Sr. Mr. Hammer was said to have bragged that he kept the elder Gore "in my back pocket."

Since becoming vice president, Mr. Gore appears to have gone out of his way to help Occidental. Between 1995 and 1997, he helped engineer the sale of publicly owned Elk Hills Naval Petroleum Reserve in Bakersfield, Calif., to Occidental. Since 1912, the Navy had zealously guarded Elk Hills as a strategic resource. Congress resisted privatization attempts by Presidents Nixon and Reagan, but relented when President Clinton pushed it through as one of Mr. Gore’s "reinventing government" reforms. Bill Sammon of the Washington Times notes that, "The sale of Elk Hills to Occidental was a dramatic departure for an administration that has walled off huge expanses of private land for public preserves."

In addition, Occidental has been paying the vice president $20,000 a year for decades for mineral rights to zinc-rich land the Gore family holds near Carthage, Tenn. Reports say the firm continues to make payments, even though it has never mined the land.

The convention protesters are upset about Occidental’s plan to drill on the sacred ancestral Indian land because the tribe is threatening mass suicide if drilling goes forward. Thus far, Mr. Gore has refused to divest from Occidental or use his leverage to block the planned drilling. We certainly agree with him, but likely for different reasons.