Natural gas is the plastic industry's top priority in Congress' energy debate. But those expecting Washington to do much to address what the industry sees as a supply crunch in the next few years could be disappointed.
Industry lobbyists say the mammoth rewrite of energy laws that Congress is working on may not do enough to alleviate what they see as a shortage of natural gas or open up enough new domestic sources of energy, at least for the foreseeable future. Congress wants to resolve differences between Senate and House versions in September and send legislation to the president.
``Short term, I don't see any discernible relief or game plan to bring more natural gas supplies online,'' said Maureen Healey, vice president of government affairs for the Society of the Plastics Industry Inc. in Washington.
The issue is important to the plastics industry because natural gas is the feedstock for 70 percent of the raw materials used by U.S. plastics processors.
The American Chemistry Council expressed anxiety in a July 16 letter to congressional leaders who are crafting energy policy: ``Recently adopted policies that have taken promising domestic lands `off the table' for future production are of great concern.''
ACC, in Arlington, Va., includes the American Plastics Council.
Some analysts, however, dispute the idea that prices are rising because the government is blocking new exploration.
The larger problem, they say, is that electric power companies are using much more natural gas because of environmental advantages over coal and nuclear power. That is pushing prices up beyond levels that industries using natural gas as a feedstock are accustomed to, said Patricio Silva, an energy policy analyst with the Natural Resources Defense Council in Washington.
Whatever the cause, industry wants government action to help address rising natural-gas prices. Cheap natural gas historically has been a key competitive advantage for the U.S. plastics industry, because European producers are more dependent on oil as a feedstock.
Healey said she was more hopeful when the energy debate started last year that relief would be forthcoming. But natural-gas industry officials say political and environmental opposition to opening new sources, such as drilling off the coasts of Florida and Alabama, has weakened the ability to bring new supplies online.
``We would agree with the premise that the congressional bills don't have that immediate shot to increase natural-gas supply,'' said Peggy Laramie, spokeswoman for the American Gas Association in Washington, which represents utilities. ``The balance between supply and demand will continue to be tight.''
The energy bill sets up tax incentives to construct a natural-gas pipeline from Alaska to the lower 48 states, but that will take a decade to build.
For the U.S. plastics and chemical industry, the general rule of thumb is that the industry's international price advantage disappears when natural gas rises above $4 per thousand cubic feet. Currently, the price is about $3.20, and one analysis, from Raymond James & Associates in Houston, projects an average price next year of $4.
Others, however, do not see supplies getting that tight. The U.S. Energy Administration, for example, projects about $3 for 2003.
As gas prices get to $4, coal starts to look much more economical for power plants and that helps to hold down prices, said Leonard Crook, vice president of ICF Consulting in Fairfax, Va. ICF projects medium-term prices in the ``$3 plus range.''
ACC argues that rising natural gas prices already have eaten into the historic advantage enjoyed by the plastics and chemical industries. Natural gas costs 50 percent more than it did in 1999, and is well above the historical average of $1.80-$2.20 per thousand cubic feet, ACC officials said.
``The increase in natural gas costs has contributed to our trade surplus being slashed by 60 percent in recent years, a decline of 12,000 production jobs, and manufacturing capacity for a number of the highest-volume chemical products idled,'' ACC wrote.
NRDC's Silva said that the energy legislation delivers significant tax breaks for the oil and gas industries, almost doubling existing subsidies during the next decade.
``A lot of folks argue that the market is locked up by environmental restrictions,'' Silva said. ``It is not existing environmental or regulatory considerations. Prices are set by demand.''
Industry officials said they are pleased that Congress is addressing the energy issue. One industry official who requested anonymity said: ``This is still a major cost increase for plastics businesses, but not something we can't live with.''