Businesses Face Gas Crisis

Bristol-Myers Squibb's pharmaceutical manufacturing facility in DeWitt faces an increase in natural-gas costs this winter of at least $2 million. "That's $2 million over budget," emphasizes Larry Leatherman, general manager. "It absolutely is a concern to us."

Leatherman explains that natural gas is used to fire the boilers that produce steam, which is used to provide heat in the manufacturing process. "We're an energyintensive operation," he says. The steam is used to sterilize the company's huge, three-story fermentation tanks before each new batch is processed. "There's not a lot we can do about it," admits Leatherman. "If we use oil as a backup, that also is expensive and it's not as clean burning."

Carol Murphy, executive

director of the Independent Power Producers of New York, says the problem is "more supply than price." Her association represents independent power generators in the state; most of the new stations built use natural gas to fire the turbines that produce electricity. Murphy says she believes most of the generators have arranged for their gas supplies and locked in the prices.

There's a problem with that, though, says Sandy Kraker, in retail sales for the Amerada Hess Corp. He explains that in 1999, December saw the cheapest naturalgas prices in more than a year. Since then, says Kraker, prices have been rising continuously. "Usually, during the 'shoulder months,' March and April, or between the summer and winter seasons, prices drop. But this year, the market never slowed."

In addition, Kraker explains, when gas prices dropped last year, production levels also dropped, Wells were shut down. That's when the price goes up, he says. And now, "gas in storage is low," says Kraker. During the 'injection season,' April through October, because of the rising market, producers were hesitant to put expensive gas in the ground and were selling winter gas into the summer market."

He hesitates to say that there definitely will be a shortage of natural gas this winter. "The Farmers Almanac predicts a mild, late winter." Kraker calls November and December the "key months in the energy business." So, he concludes, if winter is late, prices may come down. "That's what happened last year, and the December prices reflected this."

Oil, which some larger companies may be forced to use as backup fuel, "is very serious," says Kraker. "The refineries are at 95-percent capacity." Even if the crude oil is available, he says, "they can't refine it any faster."

And there's a difference between the way natural gas and oil are transported. Michael Meese, spokesman for Agway Energy, explains that natural gas comes through a network of pipelines, while oil is delivered by truck. And, while environmentalists, especially in Alaska, have held up the construction of important pipelines, trucks can be held up by the weather. So, some of the problem, says Meese, "is logistics how to get it from there to here."

Commercial laundries are among the companies that will be greatly affected by price hikes in the natural-gas industry. James Christopher III, president of Allied Laundry in Solvay, says his company just completely renovated its plant, buying all new, energy-efficient equipment. Christopher says he was looking forward to halving his energy costs. "Now, it looks like we'll come out even."

D. J. Smith, corporate environmental engineer at Coyne Textile Services, whose headquarters is in Syracuse, says that in January he acquired energy oversight as part of his job - "just in time," he says ruefully, "for the natural-gas crisis." Coyne has 18 facilities throughout the eastern half of the United States. Commercial laundries, Smith explains, use natural gas in their finishing processes. "Our gasfired dryers process 40,000 to 50,000 600-pound batches of laundry each day. We also use gas to produce steam for our tunnels and steam irons." The tunnels, he says, are exactly that - in which clothes are steamed as they are moved through.

Smith says the company can't easily reduce gas usage. The purchase of new equipment, he notes, would "require a major capital investment." However, Smith and his team are approaching the problem administratively. As the price for gas goes up, he says, the company has to raise the price to its customers, which means that "practically everyone is affected by high gas prices," even if they don't directly use natural gas.

This is a "huge concern," says Smith, who is going through the budget process now. "We set up our contracts, which are usually no longer than a year in length, to take advantage of price decreases." The problem, he says, is that there was no dip in prices. "As soon as a contract is set up. you should start looking for a price decrease and contact your supplier to lock in that price for your next contract," he advises. Smith has noticed that there are "fewer calls from marketers." Is that because of prices? He doesn't know. But he believes that the buyer has to take the initiative, be proactive, and look for the best time to lock in a price.

Neither Allied nor Coyne have backup fuel alternatives, Christopher notes that the company "used to have oil tanks, but regulations during the '70s forced us to abandon them. It would have cost us $1 million to replace those underground tanks and meet regulations," he explains.

Some Shippers Add Fuel Surcharges

Airborne Express has just announced that, effective Oct. 16, an additional Ipercent fuel surcharge will be added to an existing 3-percent fuel surcharge for all shipments moving through its transportation network, The 4-percent surcharge will apply to all domestic, Canadian, and international Express shipments.

Many of Airborne's competitors have also been hit hard by the high cost of fuel. FedEx added an additional 1 percent to its 3-percent fuel surcharge in April. UPS followed suit by implementing a temporary 1.25-percent fuel surcharge on Aug. 7.

Airborne's surcharge will apply to shipping charges only, and will not affect the cost of other services.

Copyright Central New York Business Journal Sep 29, 2000
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