Gearing up for new push. Chemical makers want government's ear on energy policy

March 29, 2003, 1:40AM By CLAUDIA H. DEUTSCH New York Times

No one in the chemical industry will come out and say it. But the truth is, for chemical companies, the war in Iraq is not all bad.

Executives know that in times of war, people harbor nagging fears that burning Iraqi oil fields and rampant unrest in neighboring countries could quench the flow of oil and send prices way up, inevitably pushing natural gas prices up as well.

And that, they believe, makes the timing right to push Washington for energy policies that will at least curb the volatility of gas and oil prices.

"The fact that we are having a war reminds us again of the fact that we have to come to grips with a U.S. energy policy," said Greg Lebedev, president of the American Chemistry Council, the industry's main trade association.

To be sure, the industry has a lot to worry about. Its major input, oil, is expensive, and its outputs go to many cyclical industries that will weaken as a war wears on.

Even so, few industry experts think war will drive oil or natural gas prices significantly higher. The severe winter, coupled with the long run-up to war, did that months ago.

"The rise in natural gas prices was extraordinary over the last three months," said Klaus Peter Lobbe, chairman of BASF. "Some of that was the severe winter, but without the threat of war, prices would never have been this volatile."

Now the weather is warming up and there is no longer uncertainty about war. For two weeks, oil and natural gas prices crept down, until last week.

"A week ago, I'd have said that as soon as planes start flying, energy prices would go through the roof," said William Stavropoulos, chairman of Dow Chemical Co. "But Saudi Arabia is producing full out, Venezuela is coming back slowly, and it doesn't look like there will be huge damage to Iraqi oil fields."

The chemical industry has a huge amount at stake in whether the oil keeps flowing. It uses oil and gas as raw materials as well as fuel.

Thus, the council did not wait for war to break out to use it as a platform for seeking help.

On March 11, the council led a campaign to press the government to work with Canada and Mexico to increase the supply of available natural gas in North America, to reduce consumption by governmental agencies and to encourage conservation. It also asked that the president not support environmental regulations that discourage drilling in new areas or those that offer incentives to switch from coal to natural gas, thus causing a run on already tight supplies of natural gas.

In a sense, the industry is less concerned about the absolute level of prices than about the inability to predict them. The price of oil and natural gas varies daily; most sales contracts lock a specific price for products for a quarter.