The natural gas vision -- 2

July 26, 1999
As noted in this space last week, a useful vision for the U.S. natural gas industry is a 30 tcf market by the year 2010.

As noted in this space last week, a useful vision for the U.S. natural gas industry is a 30 tcf market by the year 2010. Doubt exists that annual consumption can grow by the 8 tcf needed to reach that level in so short a time. Much depends on the extent and speed of the electricity industry`s restructuring, which is a work in progress. Because much gas-demand growth will occur in the market for power-generating fuel, the shape and size of the restructured or deregulated electricity market will be very important (OGJ, July 19, 1999, p. 19).

Realistic or not, the vision of a 30 tcf gas market should motivate planning of U.S. producers, gas processors, pipelines, and marketers. In the wake of twin slumps in the prices of oil and gas, that`s easier said than done. But it should be encouraging.

Growth needed
To realize the vision, the gas industry must grow on nearly every front. In the process, it must adopt new, more-flexible business practices.

The U.S. Energy Information Administration`s latest Annual Energy Outlook estimates the growth needs against a more distant horizon-2020 rather than 2010. The estimates apply to EIA`s reference case outlook for steady gas-demand growth, which falls 2 tcf/year short of the 30 tcf vision at the 2010 landmark.

Gas demand in 2020 under EIA`s reference-case assumptions will be nearly 50% higher than 1997`s 22 tcf. To meet the increase, EIA says, offshore production will jump by 57% in that period, onshore production by 14%. Pipeline capacity will grow by 32%.

The resource won`t limit supply; plenty of gas exists in nature. EIA notes other constraints, however.

Two of them are supplies of offshore rigs and of skilled personnel. Reconstruction of the offshore fleet stalled when the oil price plunged in the second half of 1997. It must resume. After another cycle of layoffs, the workforce needs reconstruction, too.

What is more, the gas industry`s contracts and practices need to become more flexible and responsive. In the ideal market, gas would be available at generation plants whenever it was needed. The market doesn`t work that way yet. Electricity companies still often trade for power to meet demand surges rather than buy gas on more favorable terms because gas contracts and nomination procedures aren`t responsive enough or because needed information isn`t available.

That rigidity has to change. The gas industry made progress in 1997 when it became possible for companies to nominate for pipeline capacity on the same day they buy gas. Yet in the electricity business, hourly nominations are normal.

And the gas business, while further along in its restructuring, isn`t as open with information as its counterpart. Under federal rules, pipelines make information about capacities and rates available on electronic bulletin boards, some of it retrospective. The power business has more information available, quicker, on its open-access, same-time information system (Oasis). The gas business needs something just as comprehensive and fast. The Gas Industry Standards Board is laying the groundwork by developing standards for use of electronic commerce in gas trading. The aim should be ready access to contemporaneous transaction details.

With its ability to store product and vary pipeline compression, the gas business has flexibility of delivery that the power business lacks. It needs to tailor its contracts and operations to make maximum use of that advantage in meeting the often rapid changes that power generators must make as they accommodate their output to demand.

Challenge and opportunity
To the gas industry, the vision of a 30 tcf market in 2010 represents a challenge. On some fundamental fronts, the starting point is very low. Oil and Gas Journal predicts that well completions this year will total a moribund 18,600 and that the rig count will average only 580 units-despite an expected drilling upturn in the second half (see Midyear Forecast, p. 49).

The price crash is yesterday`s news. The gas industry has a vision brimming with opportunity. It`s time to get busy.