Energy: The Winter Of Our Discomfort?

Oct. 17, 2006

Natural gas and oil prices will be lower this winter.

The venerable Old Farmers Almanac -- it's been around since 1792 -- predicts a colder-than-normal winter this year from Boston to Washington, D.C., and heavier-than-normal snowfall in the Midwest, the Plains and the Rockies.

But for many U.S. manufacturers, this winter could be several degrees more comfortable than recent winters have been.

Working inventories of natural gas, for example, are likely to start the coming heating season at their highest levels since 1990, says the U.S. Energy Department. What's more, spot prices for natural gas, which averaged $13.44 per million cubic feet last December, could run roughly $3 less this winter, estimates the Energy Department's Energy Information Administration.

"This has got to be a lot better news for industries that depend on natural gas," says Rayola Dougher, manager of energy market issues at the American Petroleum Institute in Washington, D.C. Paper, glass and steel are among the industries that use natural gas in their production processes, while the chemical, plastics and fertilizer industries use natural gas as a primary feedstock.

"For oil, things are looking pretty good," says Donald A. Norman, an economist who tracks energy issues for Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group. The growth of consumption is slowing as demand dips in reaction to higher prices and as growth of the world economy begins to slow, he explains. "While I recognize there is an upside risk because of the lack of spare capacity in the world oil market, there's a potential for oil prices to drop below their current level as a commodity," Norman states. "Once people make up their minds that the sky is not going to fall, you remove a lot of that risk premium from the price."

Despite such encouraging energy supply and price prospects, manufacturing executives continue to have their concerns. For example, 65% of senior executives of large U.S. companies recently surveyed by PricewaterhouseCoopers view higher energy prices as a barrier to their companies' growth.

"Over the past year, energy prices have risen 23% due to increased global demand, limited domestic supplies, natural disasters and global instability," John Engler, president and CEO of the National Association of Manufacturers (NAM), said in a Labor Day report on the U.S. economy, noting that rising energy prices had cost workers half a percentage point in inflation-adjusted wages. The Washington, D.C.-based NAM renewed its call for U.S. energy policy reform. "The time has come to build a national energy policy to address these costs by increasing domestic production and supply," Engler said.

Later in September, however, as members of Congress prepared to head home to campaign for the November elections, energy legislation wasn't on the front burner. And even if it had been, oil from new offshore reserves would be years, not months, away.

So, in the short-term manufacturing's degree of comfort will be determined by the severity of the coming winter both in the U.S. and Europe, the strength of the rest of the 2006 Atlantic hurricane season and the seriousness of any Middle East supply disruptions.

See Also

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.