Cambridge Energy chairman warn of nation's energy woes.

The nation faces a critical five-year period in which, unless new steps are taken by consumers, industry and government, there is significantly increased risk of higher, more volatile natural gas and electric prices, job losses, demand destruction and industry relocations, Cambridge Energy Research

"It is clear that, without measures to boost supplies or temper demand, the market is locked in a strong price environment," Yergin said. "Natural gas prices today have spiked to triple the average of the 1990s, and that is signaling what is ahead."

"The challenge lies between now and the arrival of substantial new volumes of LNG on North American shores," he said. "This is a multi-year period when we expect that a tightening of the balance between supply and demand could lead to even higher and more volatile prices for the continent. An event as simple as an abnormally hot summer or cold winter could push prices well above recent levels, to the $6.50 to $8 range in the summer, and above $10 during a particularly cold winter. This is exactly what Hurricane Ivan has done."

A range of measures are available to enable the U.S. to manage natural gas demand and exposure to price volatility during the bridge period of 2004 to 2009, including:

* Effective customer education and flexible gas procurement mechanisms by utilities;

* Fuel flexibility for new and existing electric power capacity;

* Resolution of the mismatch between the short-term contracting bias of consumers and the need for longer-term commitments to underpin new natural gas infrastructure, such as Arctic and LNG supplies; and

* Acceleration of gas production in the near tenn by streamlining permitting for activity and applying flexibility.

"The challenge is before the industry and regulators and policymakers--and indeed the nation--to manage a difficult market environment over the next few years while new supply arrangements can be made. Critical decisions, some implemented for just a few years, could provide some real relief for consumers in the coming few years and ensure natural gas' deserved place as a fuel for economic growth and environmental quality," Yergin said.

He identified key industries already hard hit by the higher natural gas prices as the ammonia-based fertilizer industry, petrochemical industry, pulp and paper, primary metals such as steel, and other sectors that depend on natural gas. "Unfortunately, we expect natural gas demand growth in the power sector will come at the expense of more constrained industrial sector consumption--what is described as 'demand destruction.' Industrial consumers are already examining off-shore locations for new plants," Yergin said.

"By contrast, many parts of the world are awash with gas," he noted, and "outside North America global natural gas reserves are growing. Projects are now under way to bring these new global resources to North America as LNG, and there are huge quantities of stranded gas in Alaska and in the Canadian Arctic."

Yergin predicted that the bulk of North American supplies in the next decade and a half will come from continued exploration and production in North America, with LNG playing an important role as the third major supply source after the U.S. and Canada. "Today LNG provides 3% of U.S. supplies. By the year 2020, that share could be 25% to 30%," he said.

However, according to Yergin, the problem is that developing LNG supplies, as well as Arctic gas, requires long lead-times. The soonest LNG could provide significant price relief is 2008, with 2009 a more likely date, he said. In addition, gas from the Canadian Arctic could reach the market by 2010, and Alaskan gas will not arrive until well into the next decade.

"With upward pressure from demand, prices are performing their essential function--signaling the change in conditions to both producers and consumers. Prices for the next three to four years are expected to exceed $5 per MMBtu, more than double the levels of just a few years ago. These prices are adding to the burdens of consumers and shifting the competitiveness of key industries that depend on natural gas. Yet it is important to understand that producers have limited ability to significantly increase gas production in the near term without access to new sources and new areas," Yergin testified.