The U.S. natural gas business has reason to herald its golden age. In a trend favored by environmentalists and President-elect Bill Clinton, gas demand is growing again. Prices at the wellhead have recovered from an early-year slump, notwithstanding last week's setback. A decade-long deliverability surplus has shrunk to tolerable size. Completion of Federal Energy Regulatory Commission Order 636 at least partly clarifies the rules of gas business conduct.
What's more, winter has arrived, with its promise of cold weather and strong demand. So the price crash is history. The present looks good, the future even better. Things are cheery in the gas trade.
All the industry has to do now is perform-flawlessly.
RELIABILITY FEARS
Supply this winter looks ample. American Gas Association says the industry can deliver 2.565 tcf to market if necessary in January, more than the month's record demand of 2.426 tcf in 1979. Natural Gas Supply Association says gas production capacity utilization remains 6-7% below maximum practical levels, enough to cushion demand shocks. A reminder about the importance of performing-of delivering gas promptly and in sufficient volume no matter what temperatures and demand do-is not a prediction that problems will arise.
The industry must recognize, however, that performance problems this winter would have devastating results. Order 636 has raised expectations about flexibility of gas transportation and security of supply. Delivery failures would resurrect fears about gas reliability, offsetting the fuel's environmental advantages and perhaps diverting prospective gas consumers to other fuels.
Much future gas demand growth depends on imminent fuel choices in the electric power generation and transportation markets. Crucial to those choices is consumer confidence in gas supply, especially among utility power generators. Electric utilities have statutory service obligations; some doubt they can meet power demand surges with gas as the generating fuel.
Gas thus must contend with an institutional utility preference for coal-visible, aboveground piles of which do wonders for fuel buyers' confidence in supply. To counter the prejudice, the gas industry must perform to standards at least matching those imposed by utility service obligations. Before Order 636, interstate pipelines had service obligations of their own. Producers and marketers must adopt comparable urgency.
At the moment, the industry has distractions. Producers wonder whether gas prices will encourage enough drilling to add reserves in step with future market growth. Many are learning the marketing business. Pipelines are restructuring. Everyone wonders whom Clinton will appoint to FERC and other key energy positions.
THE PROBLEM IS NOW
The industry's most immediate goal, however, must be a winter without a hitch in gas deliveries. A cold snap like that of December 1989 would test a system in transition, despite physical improvements made since then. Producers need to identify fields and facilities susceptible to freeze-up and prepare accordingly. Pipelines and marketers should know where to turn for alternative supplies and transportation services in case of weather problems in primary producing or storage areas. Everyone must remain flexible and determined to make contracts work.
Stakes are high: gas supply confidence and future demand growth. With planning and cooperation, the system can and will perform flawlessly in any weather; it can and must remove supply doubts lingering on the road to the gas industry's golden age.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
