Natural gas supply will match or exceed U.S. demand during the 1994-95 heating season, the American Gas Association predicts.
AGA Pres. Michael Baly said, "Available peak month natural gas supplies are expected to be about 2.619 tcf, meeting or more likely exceeding demand for the 1994-95 winter heating season's peak month."
Conventional gas production is expected to be 1.61 tcf, or about 60% of total peak month natural gas supplies, with underground and liquefied natural gas storage providing more than 30%. By mid-October 1994, more than 3 tcf of working gas was reported in storage for the coming winter peak demand periods.
During the peak demand month, Canadian and LNG imports are expected to provide ??O bcf, while supplemental sources such as propane/air and synthetic natural gas can contribute as much as 14 bcf.
An AGA stud develops "an aggressive" peak month demand maximum of 2.614 tcf for January 1995, even though conditions required to reach that level are not likely to occur. The record is 2.538 tcf burned last January.
Baly said, "It is worth pointing out that the natural gas industry faced an immediate test of the effects of the Federal Energy Regulatory Commission's Order 636 on systems operating in a record cold January 1994.
"This test was passed by the natural gas industry with flying colors. Despite the fact that heating degree days for the week ending Jan. 22, 1994, were 31.4% higher than normal, there was adequate natural gas supply delivered at very competitive prices."
The report described system operations during January 1994 and said companies have tried to improve gas supply practices since then.
AGA's survey includes data from 23 major pipelines and more than 70 local distribution companies (LDCs).
In a separate study, AGA said the volume of natural gas in storage at the beginning of the 1994-95 winter heating season is expected to exceed the previous year's level of 2.998 tcf.
Working gas in storage reached a postwinter low of 844 bcf Apr. 1 but rebounded to 2.85 tcf by Sept. 16, or about 89% of capacity. Operators have added 150 bcf to inventories in October of the past 2 years. If that occurs again, working gas in storage could easily exceed 3 tcf.
LDC SURVEY
AGA also released a report by Foster Associates examining a sample of LDCs' gas supply portfolios.
Baly said, "The study shows that LDCs are looking for strategies to reduce costs, such as efficient use of storage and demand-side management programs, and are in general contracting with a variety of suppliers who offer strengths that complement one another."
Much of the gas in the LDC supply portfolio study was purchased under long term, firm contracts because more than 90% of gas sales of companies surveyed were to the residential and commercial heating markets. This high proportion of heating load results in very high peak day requirements where reliability is paramount, Baly said.
"Because of the importance of reliability, no LDC supply portfolio is designed solely to minimize gas costs," Baly said. "However, numerous types of pricing provisions and contract terms are being used within long term contracts to provide economical service without sacrificing supply security.
"These include such provisions as prices tied to an index price plus a reservation charge, prices tied to an index plus a premium, variable contract length, flexibility of takes, and seller performance."
The study found many LDCs are served by four or more pipelines, which enables competition to flourish, Baly said. Most LDCs surveyed said they are pursuing supply arrangements with a variety of suppliers, including major producers, independent producers, and marketers.
They also are focusing on a variety of supply regions, in each case considering the area's maturation and deliverability characteristics.
Baly said, "Generally, LDCs are dividing portfolios into three or four components based on requirements, then tailoring contracts accordingly. Baseload, swing, peaking, and storage supplies are some of the portfolio categories with differing degrees of flexibility in the contracts behind the volumes."
Baly said the variety and diversity of portfolios show LDCs are adapting well to their new supply responsibilities under FERC's Order 636, which restructured the way the natural gas industry plans and operates.
FINANCIAL MARKET TOOLS
A study conducted for AGA by Schlesinger & Associates, Bethesda, Md., said LDCs are using gas futures and options more than in the past.
"Gas futures, options, and swaps (collectively referred to as financial mechanisms) have become a regular, integral part of supply contracting in the natural gas industry and are nearly universally employed mechanisms by gas marketing companies," the study said.
"Techniques for utilizing financial mechanisms in the gas industry do not differ appreciably from such techniques in other commodity markets. They are used essentially for the same price risk stabilization and management purposes and according to the same sort of rules."
The study also said many LDCs are experimenting with direct use of financial mechanisms in close communications with state regulators.
"However, most LDCs are currently receiving as part of their long term contracts with gas marketing firms many of the same kinds of protections otherwise offered by financial mechanisms.
"In the future, LDCs' interest in financial mechanisms will expand from the supply side to the market side of their businesses to include offering customers a widening diversity of rates."
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
Issue date: 11/07/94
