Get Out Your Sweaters

PRESIDENT BUSH MAY HAVE BEEN blamed unfairly for the hurricane that hit New Orleans, but there isn't going to be anywhere to hide when the next "natural" disaster hits--the Natural Gas Shock of 2005-06. Natural gas is now selling at $12 per thousand cubic feet, up from $2 in 2002. But that's just the beginning. The industry has not fully recovered from the hurricane damage to its Gulf Coast facilities. This winter, as supplies tighten with the cold, the price could soar far higher.

The effects will be unevenly distributed. Homeowners will pay more--perhaps twice as much as last year, depending on the weather. Electric rates may go higher. But the real impact is going to be felt in the industrial sector, where devastating layoffs are already occurring. "We need to declare a national crisis," says Andrew Liveris, CEO of Dow Chemical, which is moving the "center of gravity" of its manufacturing base to Europe and the Middle East, where gas is more plentiful. "Dozens of plants around the country have closed their doors and gone away, and are never coming back."

Alan Greenspan has been warning about our failed and fouled energy policy for years, but no one has paid much attention. Least attentive of all are congressional Republicans who--in an act of near dementia--pulled a provision for opening up the Arctic National Wildlife Refuge for gas exploration out of a 2005 House budget bill. They may want to change their minds by next February.

Our natural gas production peaked in 2001, just as our oil production peaked in 1970. It probably isn't going back up. Sure, some new discoveries offshore and in Alaska may slow the decline--just as opening Prudhoe Bay slowed the drop in U.S. oil production during the 1980s. But in terms of domestic production of oil and gas, we're probably over the hill. Imports from Canada have picked up the slack since the late 1990s, but Canadian production has also peaked.