The U.S. Energy Information Administration reports a number of states have begun to offer unbundled natural gas services to residential consumers.
It said Maryland, Pennsylvania, New York, California and others are experimenting with pilot programs to bring benefits of industry restructuring to the local level by allowing residential customers to buy natural gas directly from third-party marketers.
This and other examples of continuing ripple effects of deregulation anchor EIA's annual analysis of U.S. natural gas industry trends. The agency also studied gas transportation, storage, price, and supply/demand trends in 1995-96.
Pilot programs
EIA's analysis of the gas industry noted the pilot programs experiment with unbundling at the residential level, allowing customers to shop around for the best gas purchase deal, while paying the LDC separately for distribution and other service costs.
Historically, local distribution companies (LDCs) have provided bundled services to residential customers, combining gas sales with other necessary services such as storage and distribution.
Goal of the pilot programs is to lower prices to consumers by increasing competition among natural gas retailers.
Other states studying residential pilot programs include Connecticut, Massachusetts, New Hampshire, Ohio, Wisconsin, Iowa, Montana, and Wyoming.
EIA said those states, plus at least 13 others, have also begun similar programs for small commercial customers.
"Taken together, these programs represent state regulators' attempts at finding ways to pass the benefits of restructuring down."
Tracking other trends
The EIA report also examined the growth of market hubs or centers that provide buyers and sellers a range of choices in the purchase and sale of natural gas and related services.
"Strategically located near pipe-lines and with access to storage facilities, they expand the reach of prospective buyers and sellers, permitting markets to develop for the trading of natural gas volumes, storage, and transportation capacity.
"Of the 39 market centers operating nationwide, 27 began operations in 1994 or later. As market centers continue to grow and mature, they will tend to increase the industry's overall efficiency, potentially resulting in lower prices and more reliable supply for all gas customers."
EIA assessed a number of key trends, including recent price movements. It said while the 1995 average wellhead price declined 16% to $1.55/Mcf, monthly wellhead prices have generally climbed since summer 1995. During 1990-95, the cost of gas to final consumers dropped (in 1995 dollars) by 10% for residential customers and 36% for electric utilities.
EIA said overall end-use consumption continues to grow, as it has every year since 1986, increasing 4% in 1995 and 3% last year (through November 1996).
"Natural gas production during 1996 (was) on track to reach its highest level since 1981. Natural gas reserves increased in 1995 for the second year in a row, for the first back-to-back increase in yearend reserves in 28 years."
Storage, transportation
EIA said working gas storage levels reached a record low in March 1996, prompting 20% greater refill activity during April-September 1996 from the same period in 1995.
EIA said stocks at the beginning of the 1996-97 heating season were 7% below last year's level, but the level still would have been sufficient to meet the winter demand experienced in the past three heating seasons.
It said new and expanded storage facilities added nearly 1.4 bcfd to deliverability in 1995, an increase of 2% from 1994. Most of the increase is in new, high-deliverability, salt cavern storage in Texas and Louisiana.
EIA noted that as transportation contracts expire, gas pipeline companies are seeing more and more customers (shippers) renewing for less capacity than before, thereby turning back formerly contracted capacity to the pipeline companies: "This capacity turnback trend has many in the industry concerned, because approximately half of current transportation contracts will expire by Dec. 31, 2001, with the potential for hundreds of millions of dollars of reduced annual revenues for pipeline companies."
EIA said a relatively new industry procedure allows shippers to resell pipeline transportation capacity they have contracted for but are not using. "The market for this released capacity has grown steadily since its inception in 1993 and has generated nearly $1.2 billion in revenue to releasing shippers. But average rates for released capacity are still well below maximum allowable rates.
"In the 1995-96 heating season, rates were discounted an average of 65% from the maximum, while during the 1995 nonheating season, rates were discounted 83%."
Two markets
EIA contends the behavior of natural gas futures prices on two major exchanges has highlighted the difference between eastern and western supply markets.
"The New York Mercantile Exchange (Nymex) futures contract associated with the Henry hub in southern Louisiana is the benchmark for eastern markets. The newer Kansas City Board of Trade (Kcbot) contract, pegged to the Waha hub in West Texas, as well as the even newer Nymex contract for delivery through the Permian pool in West Texas, tend to characterize western markets."
EIA said during August-December 1995, prices for the next-month contract rose at both the Henry and Waha hubs. However, prices for the Henry hub contracts almost doubled, compared with a 50% increase for Waha hub contracts.
It noted several recently completed and proposed pipeline expansions deal with bottlenecks between western supply areas and eastern markets.
"During 1995, several Texas intrastate pipeline companies increased capacity between the West Texas Waha area and market centers located in eastern Texas, for further transport to Louisiana. An expansion of 350 MMcfd is planned from the San Juan basin (New Mexico) production area to the Waha area.
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