AGA: THERE'S PLENTY OF GAS FOR HARD WINTER

The American Gas Association predicts U.S. gas supply this winter will be adequate to meet national demand. AGA's survey of producers, distributors, pipelines, end users, and marketers shows that supplies will be adequate even if January 1992 is the coldest month in 50 years. AGA said, "Al] segments of the gas industry reflected great confidence in the dependability of peak month service to firm customers even in the face of severely cold weather." Meanwhile, another AGA survey said local

Oct. 21, 1991

5 min read

The American Gas Association predicts U.S. gas supply this winter will be adequate to meet national demand.

AGA's survey of producers, distributors, pipelines, end users, and marketers shows that supplies will be adequate even if January 1992 is the coldest month in 50 years.

AGA said, "Al] segments of the gas industry reflected great confidence in the dependability of peak month service to firm customers even in the face of severely cold weather."

Meanwhile, another AGA survey said local utilities and pipelines have passed through to producers recent declines in natural gas wellhead prices.

WINTER GAS SUPPLY

AGA said gas supply in the 1991-92 winter will continue trends created by the changing natural gas market structure. During the past 5 years, companies have developed balanced supply portfolios, exercised "best cost" planning, and increased delivery flexibility throughout their systems.

Open access and competition in general have fueled those initiatives. For example, AGA expects pipeline system gas to be 43% of total distribution company peak month requirements in January 1992, compared with about 83% in January 1980.

Long term and short term nonsystem gas will account for 33% of local distribution company (LDC) supplies, while 24% will come from other sources such as LDC storage, LNG, and propane-air.

Extremely high demand levels of December 1989 showed that spot gas in combination with storage gas could assist in satisfying peak month requirements.

Growth in gas demand in certain regions, coupled with the changing gas supply mix, has emphasized the need for planning pipeline capacity additions to resolve some regional supply imbalances.

AGA noted the U.S. record for monthly gas consumption was 2.426 tcf in January 1979, and since 1982 the maximum has not exceeded 2.314 tcf/month.

It projected peak month supply capability will be 2.531 tcf for the 1991-92 winter. It said maximum sustainable monthly production in January 1992 is conservatively estimated at 1.57 tcf, about 35 bcf below the January 1990 production level. Peak month storage withdrawal capacity is basically unchanged at 820 bcf, and Canadian and LNG imports will equal the 156 bcf of January 1991.

The AGA survey showed several market regions of the U.S.-particularly California, Florida, and the Northeast-need more gas pipeline capacity. Each of the areas has projects under construction or pending to meet those needs.

Major gas producers sold 98% of their gas on a long term basis in January 1980 but in January 1992 expect to sell only 43% long term. Long term buyers have shifted from 96% pipelines and 4% LDCs to 42% pipelines, 20% LDCS, and 38% end users.

As for pipelines, some of the operational problems that occurred in December 1989 were the result of mechanical failures associated with freeze-ups.

Other difficulties in accounting and managing throughput stemmed largely from the hundreds of gas owners and shippers and lack of instruments to verify ownership and billing status of flowing gas.

To prevent accounting problems of this sort, AGA said, there has been a strong effort to increase real time measurement capability among companies. Survey respondents said more than 67% of the receipt and delivery points are now instrumented for real time measurements with data link capabilities.

The study noted, "The traditional spot purchase of gas is changing for some LDC companies. Rather than short term agreements such as month to month, some companies are routinely purchasing 'core' supplies from aggregators and other suppliers under long term agreements analogous to pipeline purchases."

PRICE PASSTHROUGH

Mike Baly, AGA president, said his association's survey found average retail natural gas prices to all customer classes dropped 94/Mcf during 1984-90, while average wellhead prices declined by exactly the same amount.

"No one in the natural gas industry is lining their pockets as a result of the drop in wellhead prices," he said. "The natural gas consumer is the one who benefits from lower wellhead prices."

Baly said improved efficiency enabled gas distributors and pipelines to maintain their margin-the difference between wellhead prices and the prices consumers pay-at a relatively stable level in nominal dollar terms despite inflation. But the average margin for distribution and transmission companies fell by more than 18% in 1984-90.

"Low wellhead prices are a concern for the whole gas industry when they affect exploration and production activity," Baly said. "But it benefits no one to battle over who's hurting the most from low prices. What we need to do is work together to sell more gas."

AGA data show the average wellhead gas price declined from $2.66/Mcf in 1984 to $1.72 in 1990, while the average volume weighted cost of natural gas delivered to all end users slid from a mean of $4.82/Mcf in 1984 to $3.88 in 1990. In three of those years, the decline in consumer prices was larger than the decline in wellhead prices.

He said although lower prices have hurt producers "it should also be noted that the marketing wings of the industry-the distribution companies and pipelines-are the crucial ingredient in a growing, healthy industry."

The AGA study took into account the prices of transportation gas in addition to system supply, unlike data issued by Energy Information Administration.