AGA: Gas industry adapting to rapid change

The American Gas Association says U.S. local distribution companies met the challenge of an unusual weather pattern in 1996-97, in part because they have adapted their gas supply strategies to the rapidly changing marketplace. Paul Wilkinson, AGA's policy analysis vice-president, said, "The weather in the winter of 1996-97 differed dramatically from that of our most recent heating seasons. The statistics in our survey demonstrate the flexibility that gas utility companies must continue to

July 7, 1997

3 min read

Paul Wilkinson, AGA's policy analysis vice-president, said, "The weather in the winter of 1996-97 differed dramatically from that of our most recent heating seasons. The statistics in our survey demonstrate the flexibility that gas utility companies must continue to use in the management of their supply portfolios and operations."

Study results

An AGA study on LDC system operations and supply portfolio management last winter reflects survey responses from LDCs representing 23% of national peak day demand.

It found that 55% of the gas purchased for the 1996-97 heating season was under long-term agreements (1 year or more), while 31% was bought under mid-term contracts (1-12 months).

The rest came from monthly, daily spot, or supplemental gas. Gas supply sources were varied, with the majority of peak-day supplies coming from firm transportation agreements on the interstate pipeline network and underground storage.

The survey said although LDCs use a variety of pricing mechanisms when purchasing gas supplies, most long-term gas supply purchases (81%) are based on first-of-the-month indices.

The responding LDCs said they would like to see more information included with published index prices, including discussions of the methods used to develop the index.

They were pleased with the performance of the interstate pipeline network during the winter, but some expressed concern about the pipelines' use of operational flow orders, which they said can have an extreme effect on market prices and can require shippers to make additional supply arrangements.

Although the winter was fairly mild, more than half of the respondents indicated either their end-use transportation customers or their marketers had lost supply.

AGA said, "This highlights the fact that unbundling programs need to be designed to encourage shippers or their agents to perform reliably and to ensure that LDCs-which have an obligation to serve-have adequate supply assets in place to meet unexpected demand."

Gas storage

An AGA study on storage said working gas inventories entered the 1996-97 heating season lower than the previous two winters, reflecting heavy storage drawdowns at the end of the 1995-96 season and efficiency gains in transportation, market competition, contract flexibility, and futures contracting that have enabled companies to carry less storage.

The study said the expectation of available short-term gas supplies in the competitive marketplace has led to a more effective utilization of storage assets.

AGA also said the real price of gas in the last decade has decreased, with the average transmission and distribution component steadily decreasing and average wellhead prices showing a generally declining trend in the long term, coupled with short-term volatility.

It noted that there was upward volatility in the first half of the heating season as wellhead prices responded to lower than traditional storage levels coupled with very cold weather.

But AGA said end-users paid 18% less for their gas in 1996 compared with 1987, in inflation-adjusted dollars.

It said preliminary Energy Information Administration data for the 1996-97 season indicate wellhead prices showed significant increases of more than 50% relative to the previous heating season.

On a national average, U.S. residential prices are tentatively projected to have risen a modest 12-15%.