US natural gas and world oil markets to remain tight

Tight US natural gas and world oil markets that have produced rising prices and stress on consumers won't ease up soon, US Energy Secretary Samuel Bodman said.
Oil producers will struggle for years to keep up with strong growth in demand, Bodman said, a view that contradicts some analysts' more sanguine forecasts. The gap between "the magnitude of increased consumption and the capacity of producers to respond will take some years to close," Bodman said.

Oil prices have set new records in recent days and are threatening $ 60 a barrel, as traders bet producers and refiners will have trouble meeting strong demand and also preserving a cushion against supply disruptions, particularly this winter. That uncertainty could be eased if oil-producing countries would turn over more data about their reserves, Bodman said.
"Greater transparency about known reserves in producer nations and more current and reliable information about reserve estimates would not only be invaluable for investors but could help reduce the uncertainty that puts upward pressure on prices," he said.

The US is also struggling with a tight natural gas market, in which demand long ago ran up against production capacity. US natural gas prices are the highest in the world, costing jobs in industries like chemicals, and the situation isn't likely to improve, Bodman said.
"This is a trend that, as far as I can tell, seems likely to continue," Bodman said. "The market for natural gas remains very tight." The US should do more to improve supplies of gas from federal lands and imports, via liquefied natural gas, he said.

President George W. Bush is opposed to lifting a federal moratorium on drilling in the nation's outer continental shelf, but a proposal by Sen. Lamar Alexander, R-Tenn., to give costal states the ability to opt out of the ban has generated a lot of interest among members of administration, Bodman said.
"As we see Congress coming up with alternatives, we certainly are going to look at them," he said. "We have a very different environment in terms of energy pricing now than during the campaign."

Coping with the oil-supply problem means gearing up to find and process lower quality crudes, he said.
"If heavier crude continues to take on a larger share of our oil consumption, we will need to make substantial investments in, and modifications to, our refining assets," the energy secretary said.

The comments echoed complaints from OPEC that the US hasn't done enough to expand its capacity to refine crude, contributing to the higher price of oil. Bodman also took some countries with oil reserves to task, however, saying they need to put in place protections investors need to make the long-term investments needed to develop challenging oil fields.
"The importance of a secure investment climate, including firm guarantees for the sanctity of contracts and a stable legal system, really cannot be overstated," he said.

The energy secretary didn't name any countries, but Venezuela has recently come under fire for unilaterally hiking tax rates on foreign oil projects and demanding equity stakes for the state, and Russia has unnerved investors with its high-profile dismantling of Yukos, once the country's most dynamic oil company.
Bodman, who travelled to Russia earlier to press complaints about the country's treatment of investors, said he isn't satisfied with what he's heard in response.
"I have been disappointed at the rate of response to our queries," he said. "It's not been so far the kind of response we had hoped for."

Bodman is to report the results of his trip to President George W. Bush. The effort to get countries with substantial oil reserves to open up to investors comes as the US faces increasing competition for access to oil.
No. 2 oil consumer China's soaring demand has been a key factor helping push oil prices to record highs near $ 60 a barrel in New York. The effort to meet that demand has driven the country to seek access to resources even in the backyard of the US, the world'stop consumer.

Chinese companies are already lining up investments in Canada's oil sector, and Bodman said Alberta Premier Ralph Klein told him more are coming. Indian companies will likely be right behind them, Bodman speculated.
"It's going to be increasingly difficult for our country to maintain its share of access to energy resources," he said. "The world is an increasingly competitive place in many ways. Our role is to work with these countries and see to it we have a level playing field," he said.