The Next Energy Crisis?

Bob Horton has survived the arrival of Home Depot and more economic downturns than he can remember. Yet this winter may be the last for his 40-year-old plumbing and heating supply shop in Osceola, Iowa, just south of Des Moines. The heating bill at his business soared to $602 last month, up from $250 a year earlier. He can’t raise prices without losing customers, and he has tried everything to save energy, from installing insulation to heating with a high-efficiency furnace. “It’s going to break us,” he says of his fuel bills. “We can’t pay the overhead.”

This winter has been no colder than most, but it’s leaving businessmen like Horton and homeowners across the country with a severe chill when they open their heating bills. The 62 million households that burn natural gas will spend 35% more this winter, according to the U.S. Energy Information Administration, with Northeasterners expected to pick up a record $1,276 average tab for the season. In the past five years, gas-burning homes have seen prices more than double. Those who rely on propane or oil for heat haven’t fared a lot better. But the big crunch is in gas. Here’s a guide to how that’s hitting consumers and businesses, who’s profiting and what you can do:
WHY IS MY GAS BILL SO HIGH? Natural gas used to be consumed mainly by firms making chemicals and other industrial goods. But in recent decades, electric companies, under pressure to pollute less, have embraced natural gas, which burns cleaner than coal or oil. Gas consumption by electric utilities has soared 76% since 1989. But unlike oil, easily transported and traded on global markets, gas poses logistical problems. It can’t be shipped unless it’s cooled and liquefied. For now, 85% of the gas we use is produced domestically. The rest arrives by pipeline from Canada, except for about 1% imported from such countries as Trinidad and Nigeria by tankers carrying liquefied natural gas (LNG). That equation is shifting. Production in the U.S. has slipped, down an estimated 5% in 2005, largely but not entirely because of storm damage to facilities in the Gulf. Meanwhile, Canada is consuming more of the gas it produces, leaving less to export. In short, we aren’t getting enough gas to meet demand–a combustible formula for high prices.

WHAT’S THE IMPACT ON THE ECONOMY? High energy costs will shave up to half a point off GDP growth in 2006, predicts Stephen Brown, an economist with the Dallas Federal Reserve Bank–”a drag on the economy,” he says, but not enough of one to tip us into recession. Still, slower growth means there will be pockets of pain. In Iowa, applications to the state’s energy-assistance program are up 8%. Public schools, hit with high heating bills, are turning down the thermostat and spending less on field trips. David Callis, who grows corn, soybeans and wheat in Missouri, has seen the price of fertilizer, which is made in part from gas, rise 50%. Consumers, meanwhile, are paying more for items like paint and plastic containers. Sherwin-Williams recently raised the average price of a gallon of paint from $22 to $26. One beneficiary: makers of home insulation, whose business is thriving.

Time