The road to a 30 tcf market for natural gas in the US developed a bump last year when reliability problems surfaced on electric power systems.
The gas industry should take notice. Power generation represents its most important growth market. While last year's electricity outages and lesser disturbances don't threaten the overall outlook, they are nevertheless cause for concern.
The gas interest
Gas use in power generation is the single largest factor in forecasts for development of a 30 tcf US market during 2010-2015. A new joint report by Arthur Andersen and Cambridge Energy Research Associates, neutral on prospects for achieving the 30 tcf benchmark, says North American gas use for power generation might double from its current level of 5 tcf in the next 15 years (OGJ, Jan. 31, 2000, p. 38). Power generation's share of gas consumption thus would grow from less than one-fourth at present to one-third as total gas consumption expands.
But that will happen only if power consumption increases as rapidly as expected under assumptions of widespread deregulation of the electricity business. Lately, the process has stalled. Deregulation of one form or another has occurred or will definitely do so in 24 states. Others might turn balky in the wake of last year's supply problems.
Economic reform, says a January interim report by the US Department of Energy's Power Outage Study Team, has outrun industry procedures crucial to reliability during the transition to deregulation. The team studied power outages last summer in New York City, Long Island, New Jersey, the Delaware-Maryland-Virginia peninsula, South-Central states, and Chicago. It also looked at less drastic problems in New England and the mid-Atlantic area.
"The reliability events during the summer of 1999...demonstrate that the necessary operating practices, regulatory policies, and technological tools for dealing with the changes are not yet in place to assure an acceptable level of reliability," the team said. That must change if the gas market is to realize its potential.
In general, the DOE researchers said, problems stemmed from the need for new market participants and system operators to learn to work together. Also, some utilities have cut spending on reliability in anticipation of competition. And responsibility for reliability, once concentrated on utilities and their regulators, has been spread among not just utilities but also independent system operators, independent power producers, customers, and markets.
"The overall effect has been that the infrastructure for reliability assurance has been considerably eroded," the team concluded.
Among the study's specific findings:
- Demand doesn't adjust quickly to supply strains because electricity customers don't receive prompt price signals.
- With market rules still evolving, participants lack experience in dealing with emergencies.
- Aging infrastructure and rising demand have caused interruptions on many transmission and distribution systems.
- Power-system operators often have poor techniques for forecasting demand and lack information on equipment status and condition.
- Contracts, maintenance schedules, and design of equipment and systems sometimes limit operator flexibility in emergency response.
- Blurred responsibility has hurt planning.
By themselves, these problems aren't serious enough to thwart growth in demand for electricity or for what has become its favored primary fuel, natural gas. Their consequences, however, might further retard progress toward industry deregulation, which could limit demand and would definitely slow development of market mechanisms crucial to power-system reliability.
Deregulation of the power industry remains crucial to energy consumers as well as to growth of the gas market. The reliability bump makes gas-industry support of deregulation more important than ever.