COMMENT IS NATURAL GAS TOO INCONVENIENT TO BE THE U.S. FUEL OF THE FUTURE?

Vinod K. Dar
Managing Director
Dar & Co.
Washington

They say the future belongs to those who make it convenient and pleasant to do business while creating value for customers.

They also assert the essence of marketing is to offer goods and services that solve the business and personal problems of companies, institutions, groups, and individuals.

In our society the standard for excellences steadily rising one, at that-in these areas is set by the telecommunications, broadcasting, entertainment, processed and fast food, mutual fund, and computer software industries.

Convenience, whether through customized products and services, ease of completing a transaction, or access to a wealth of choices, commands a growing premium in a society that considers it a right to be instantly gratified by flicking a switch, pushing a button or touching a pressure pad.

Each year we become more of a cerebral economy. Value added shifts decisively to above the neck work and businesses.

By these standards the U.S. energy industry as a whole is not in the lead pack coming around the bend. One of its representatives, electricity-a more convenient way, really, to use coal, combustible industrial and municipal waste, hydropower, uranium, wood, and the like-is making an honorable showing somewhere in the middle. Another, gasoline, is only a few runners behind.

But one wonders: Is natural gas even in the race? Did it forget the date, sprain its ankle, oversleep, or just decide to take the day off, settle down on its rocker and watch the runners go by?

Natural gas seems to be in danger of becoming the Walter Mitty of fuels-glorious, invincible, adored only in the imagination of the industry.

Consider this:

STRATEGY AND SCARCITY

The marketing strategies of producers have ranged from "Freeze a Yankee in the dark," and "If you don't have an oil well, get one" a decade ago to "Wait till the market turns, I'll get you" in more recent times.

Such bumper sticker attitudes display thinly disguised contempt for the consumer, not a realization that only the consumer pays the bills for the industry, and only consumption imparts worth to natural gas.

Some influential executives and Wall Street analysts have argued for several years that a looming natural gas scarcity and attendant curtailments and price spikes are just ahead because the current level of drilling and spending is too low.

Is it any surprise that consumers read and believe this line, perhaps more than most people in the gas industry, and are scared off from making a long term commitment to natural gas?

DISTANT SUPPLY SOURCES

Large users are often sold natural gas hundreds of miles from their facility by producers or other merchants. They are then told to fend for themselves in moving gas on one or more transmission systems and the local distribution company from the field where the gas was purchased to their facilities in Detroit, Boston, Seattle, or Los Angeles.

How many issues would a newspaper or magazine sell if people had to get their copy at the printing plant instead of having it delivered to their home or office or the ubiquitous vending machine?

Many gas transmission companies and local gas utilities certainly do not make it easy, pleasant or convenient to ship gas on their system. That forces shippers to deal with a bewildering maze of rates, regulations, and penalties-but no incentives for being frequent shippers-that frustrates existing users and discourages potential users from pursuing the gas option.

The transporting entities seem more concerned with creating transportation rules of the game that make it convenient for themselves, not the user or merchant.

Cogenerators and independent power producers, potentially the best new customers for the gas industry, find that assembling a financeable portfolio of long term-say 10-20 year-gas supply and reliable transportation for a planned new power plant is an excruciating, expensive exercise.

Many gas producers are so reluctant to sign long term contracts that it is the independent power generator who must cajole and wheedle to prove his suitability as a customer to the U.S. seller or turn increasingly to more amenable Canadian producers.

In no other industry does a customer have to work so hard for the privilege of writing checks to a supplier!

MYSTICAL EXPERIENCE

Invoicing, reconciliation of volumes of gas billed with volumes sold and transported (often through a daisy chain of purveyors), and even finding out from sellers and transporters, within any reasonable time with any reasonable accuracy, what happened to gas contracted for continues to be a baffling, even mystical experience for industrial, commercial, and institutional gas buyers coast to coast.

There have been many dreary instances of consumers trying to reconcile their natural gas bills with sellers and transporters 12-15 months after the transaction was completed.

Service after sales remains a remote, vaguely distasteful concept for large numbers of gas sellers and transporters.

This makes it unfairly difficult for the few who do believe in customer service to transcend the generally unflattering image of the producing, selling, and transporting industry in the minds of many industrial, commercial, institutional, and power generation consumers of gas.

A surprising number of managers at regulated gas companies regard gas consumers, particularly small business, institutional, and residential users, as little more than commercial vassals who exist for the purpose of being included in the rate base on which regulators grant the regulated entity a return.

"Don't steal my customers" is the warning these managers growl at potential competitors. They have yet to learn, much less acknowledge, that in a free society customers are a privilege to be earned by performance, not a right to be guarded by threats. In the long run, there are no captive customers.

Federal and state rules governing gas transportation and storage in interstate and local markets are complex, myriad, changing, inconsistent, and occasionally capricious. That brings joy to lawyers but gloom to gas users and shippers.

Yet it is a rare gas seller who takes the time and trouble to explain the shifting sands of regulation to his current or prospective customers, leaving nervous users to flounder and guess, their confidence in seller and transporter shaken and their commitment to gas further eroded.

Whatever else the gas regulatory system is and no matter how exalted the motives of regulators, there is nothing user friendly about the way the gas consumer is treated by rule makers and enforcers.

IT'S NOT TOO LATE

Gas has everything going for it to sweep the energy field: abundant, inexpensive, clean, and all-American. Yet it stumbles year after sorry year.

If it is not the fault of the consumer-it almost never is-and decreasingly the fault of the government, it's either the fault of little green men from Mars or the industry itself.

There is nothing wrong with natural gas that a passion for marketing and care for the customer cannot fix.

There is time yet to enter the convenience race and surge ahead before clean coal combustion becomes a reality, before more competent nuclear power becomes a renewed competitive force, before advanced solar conversion devices and genetically engineered biofuels and biochemicals establish a supply beachhead, and before highly efficient energy consuming, molecular engineering and waste reduction technologies begin to flatten or even shrink U.S. energy use even with brisk economic growth.

Perhaps a decade remains for gas to become the fuel of the future-but not a generation. Otherwise, it may well become the forlorn fuel of the past.

The 1990s should be the Golden Age for gas in the U.S.

The way things are going they may turn out to be the Stone Age.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.