EIA Offers Snapshot of Gas Markets in 1999
U.S. offshore production of natural gas fell slightly; the
number of new pipeline projects in the Gulf of Mexico dropped
dramatically; Texas --- the nation's leading gas producer --- took
hits to its production and consumption levels; California and
Wyoming experienced a robust boost in production; California saw
the sharpest rise in gas demand; residential users enjoyed their
second straight year of lower delivered gas prices; and pipeline
import capacity expanded considerably.
These were just a few of the snapshots of the gas industry in
1999 that the Department of Energy's Energy Information
Administration (EIA) provided in its latest report, "Natural Gas
Annual, 1999," which was released last week.
The EIA reported that marketed production of gas from all state
and federal waters declined slightly by 1% in 1999 from the
previous year, falling to 5.7 Tcf. However, it noted that offshore
production still accounted for 29% of the total U.S. marketed gas
production in both 1999 and 1998. Louisiana maintained its position
as the nation's leading offshore producer at 3.9 Tcf, while Texas
saw its offshore marketed production slip by 4% to 1.2 Tcf in 1999.
Reflecting the downturn in offshore production, the EIA report
noted the pipeline construction in the Gulf of Mexico has fallen
off dramatically since 1998. In 1999, only four significant
projects (mostly upgrades to gathering operations) were completed,
adding 1 Bcf/d to the region's pipeline capacity. This compared to
the 14 Gulf pipeline projects totaling 6.4 Bcf/d of new gas
capacity that were completed in 1998 and 1997. Most of the latter
projects "were large capacity pipelines connecting onshore
facilities with developing offshore ties, particularly in the
deep-water areas of the Gulf."
Onshore, Texas and Oklahoma --- the third largest U.S. producer
--- had noticeable declines in their marketed production in 1999 of
282 Bcf and 74 Bcf, respectively, the EIA said. The figures
represent a 4% drop for each state. Marketed gas production in
Louisiana --- the No. 2 producer --- remained relatively flat last
year, while production in New Mexico increased by a mere 1%,
according to the report.
In contrast, California and Wyoming posted the sharpest rises in
marketed production in 1999 of 67 Bcf (21%) and 62 Bcf (6%)
respectively, the EIA said. In California, the agency noted that
less gas was being used for the recovery of oil from the Elk Hills
oil field, which made more natural gas available to be sold into
the market. In Wyoming, growing producer interest in coal-bed
methane gas was credited for the upswing there.
Significantly, the number of gas and gas condensate wells
totaled 307,449 last year, a 3% decline of 9,480 wells from the
previous year. This marked the first time that the number of wells
has fallen since 1992, the report said.
Nationwide, natural gas demand rose 2% to 21.7 Tcf last year,
with end-users consuming 19.9 Tcf of the gas, or 413 Bcf more than
in 1998. The largest increase occurred in California, where end-use
consumption reached nearly 2.1 Tcf, up 137 Bcf over 1998, according
to the EIA. The largest decrease was witnessed in Texas last year,
with end-use demand declining by 128 Bcf to 3.5 Tcf, the agency
By customer classes, residential demand rose by 5% to 4.7 Tcf in
1999; commercial gas consumption increased 2% to 3 Tcf; and
industrial consumption increased 4% to 9 Tcf. But surprisingly,
consumption of gas by electric utilities fell by 4% to 3.1 Tcf last
year, the EIA report said. This was due to the fact that some
electric utility gas consumption was reclassified as industrial
demand. When utilities sell generation facilities, the facilities
are reclassified as non-utility generators, and the natural gas
that they consume is reported as industrial consumption rather than
electric utility consumption, the agency noted.
In the residential market, the largest run-up in consumption
last year was seen in Illinois, where demand rose by 35 Bcf or 9%.
The biggest change in commercial gas demand came in the California
market, with consumption dropping 13% to 37 Bcf.
As residential customers prepare for high gas bills this winter,
the EIA report reminded them they have enjoyed two consecutive
years of declining delivered gas prices. Last year, average
delivered prices for residential users fell 2% to $6.69/Mcf from
$6.82/Mcf. Residential customers got the benefit of the lower
delivered prices, even though the average wellhead price rose 11%
to $2.17/Mcf last year.
Still, the agency noted residential customers continue to pay
much higher prices for natural gas than do commercial and
industrial consumers. The average price for commercial customers
fell 3% to $5.33/Mcf in 1999, while average prices for industrials
who continue to buy from LDCs were about 1% lower, $3.10/Mcf. The
exception was electric utilities, which on average paid 9% more
($2.62/Mcf) for natural gas in 1999 than in the prior year,
according to the EIA.
Gas imports from Canada and Mexico are playing a bigger role in
the U.S. gas market. Last year, net imports rose to a record level
of 3.4 Tcf, capturing 16% of domestic gas demand, the agency report
said. From Canada alone, gas imports grew by 10% last year compared
to 5% in 1998 due to "significant increases in crossborder
capacity" brought about by two pipeline projects: a Great Lakes Gas
Transmission expansion that added 126 MMcf/d of capacity; and
Northern Border Pipeline's 700 MMcf/d expansion. The EIA also cited
a third pipeline project, the Portland Natural Gas Transmission
System, which began transporting about 147 Bcf/d of Canadian gas
into U.S. Northeast markets last March.
The U.S./Canadian crossborder capacity expansion has continued
throughout 2000, with the Maritimes and Northeast Pipeline ---
which began operating last January --- delivering about 400 MMcf/d
of Canadian gas to New England markets, and the Alliance Pipeline,
which is scheduled to go into operation in late October, to
transport 1.3 Bcf/d of Canadian gas to the U.S. Midwest markets. As
for Mexico, the U.S. imported 55 Bcf of natural gas from the
country by pipeline last year, more than triple the 1998 level of
15 Bcf. On the flip side, natural gas exports to Mexico last year
reached their highest level since 1995 - 61 Bcf - whereas exports
to Canada dropped 3% to 39 Bcf.
The U.S. pipeline grid is rapidly expanding. Last year, pipeline
companies completed and placed into service at least 35 pipeline
construction projects representing more than 6.6 Bcf/d of
additional capacity, the EIA said. ".....[O]nly three were wholly
new pipeline systems, while the rest were extensions or expansions
to existing systems, construction of large laterals off of mainline
transmission systems (mainly to serve new gas-fired electric power
generation facilities) or large gathering system header lines."
For 2000, the EIA estimated that 28 expansions have been planned
that would contribute up to 7.2 Bcf/d of additional capacity to the
national pipeline network. "As in 1999, expansion of import
capacity into the Northeast and Midwest United States will account
for a large portion of the new capacity," it said.
In addition to gas imports, imports of liquefied natural gas
(LNG) into the U.S. nearly doubled in 1999, reaching 163 Bcf, the
highest level since 1979. Algeria continued to be the major
supplier of LNG to the U.S., shipping 76 Bcf or 46% of total U.S.
LNG imports. A new source, the new liquefaction facility and
terminal in the Republic of Trinidad and Tobago, began shipping 51
Bcf to the LNG receiving terminal in Everett, MA, in May 1999.
While the price for gas from Canada and Mexico rose last year,
the price of LNG imports fell 6% to $2.47/Mcf in 1999. "This
decline occurred as global demand for LNG diminished," according to