Industry executive: California's demand for gas still exceeds supply

Despite conservation and market adjustments, California's demand for natural gas still exceeds its supply, an El Paso Corp. executive said Monday. The problem is that "the state does not have sufficient pipeline infrastructure to serve its needs," said Norma F. Dunn, senior vice-president of communications and government affairs.

June 26, 2001

2 min read

By the OGJ Online Staff

HOUSTON, June 26 -- Despite conservation and market adjustments, California's demand for natural gas still exceeds its supply, an El Paso Corp. executive said Monday.

"While reduced prices for natural gas may make it seem that the California market has come back into balance, in actuality, it has not," said Norma F. Dunn, senior vice-president of communications and government affairs for the Houston-based company.

"A comparison of natural gas prices between California and a comparable market such as New York indicates that prices remain high in California relative to the rest of the country due to a continuing imbalance between supply and demand," Dunn said in a written statement.

The problem, she said, is that "the state does not have sufficient pipeline infrastructure to serve its needs."

Henry Hub natural gas prices, the benchmark for North American gas, have dropped to $3.45/MMBtu from $10/MMBtu over the last 6 months because of increased supply and reduced demand, aided by moderating weather nationwide, said Dunn.

Yet the average price for natural gas supplies at the California is now $9.23/MMBtu, compared to $4.13/MMu in New York and $3.86/MMBtu in Chicago, she said.

"This is because a natural gas supply/demand imbalance still exists in California, not, as some have argued, because of transportation agreements on the El Paso Natural Gas pipeline system," Dunn said.

A year ago when El Paso Merchant Energy held transportation rights on the El Paso Natural gas pipeline system, Dunn said, the price differential between California and the producing regions in Texas and New Mexico was 27¢/MMBtu. Although El Paso Merchant Energy's capacity rights have since been resold to some 30 shippers in a move to increase competition, she said, the price differential now is a whopping $5.63/MMBtu for California, compared to 45¢/MMBtu in New York and 29¢/MMBtu in Chicago.

Three major factors have improved natural gas market prices in California in the last month, said Dunn.

"First, there is more electricity available from non-gas-fired electric generation, such as nuclear and hydroelectric facilities," she said.

Statewide energy conservation efforts have further reduced demand, Dunn said.

"Third, natural gas storage facilities across the country are refilling at a rapid pace, which has had a downward impact on natural gas prices," she said.