Originally created 10/26/02

Investors grow cautious in natural gas industry

A price spike could affect more than 70,000 homes in the Augusta area that are heated by natural gas, along with many others that rely on electricity generated partly by natural-gas-fired power plants.

It used to be that when Long Petroleum LLC sought a deep-pocketed partner to pursue a hot natural gas prospect, money was relatively easy to come by and deals were put together in a matter of months. Today, the Shreveport, La., company is lucky if its phone calls are returned.

"People are afraid to take a risk," said Kevin Long, whose family-owned business has been wildcatting since the 1930s. Other executives and industry officials agree, and attribute the change to a complicated mix of economics, politics and geology.

The experience of Long Petroleum illustrates how this cautiousness is transforming an industry whose legend was built by people willing to bet the ranch in hopes of striking it rich. Furthermore, the aversion to risk could lead to tighter supplies and higher prices in the future.

The prudence is palpable, experts said, and partly explains why there has been no rush to drill new wells in recent months, despite a significant ascent in the price of natural gas, a mostly domestic fuel used to heat homes and produce electricity. It will almost certainly result in higher prices for homeowners this winter.

Mark Papa, the chairman and chief executive of EOG Resources Inc., a large Houston-based oil and gas producer, said the industry trend points to a "very substantial decline" in domestic natural gas production over the next six months, and possibly longer.

EOG Resources plans to buck the trend, increasing production now in anticipation of even higher prices, Mr. Papa said.

He said he expects the wholesale price of natural gas to range between $3.50 and $4.50 per 1,000 cubic feet over the next three years. By comparison, the average price from 1996-2000 was $2.46, according to the Department of Energy.

Other industry officials are less bullish, stressing that the current price - hovering above $4 - is caused by temporary phenomena, most notably the threat of war in Iraq. They say production levels are high enough because the economy is still weak and fuel demand is recovering slowly.


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