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Nation’s Gas System Beat the Polar Vortex, AGA Says

Despite utilities taking a wide array of strategies defined by local geography and market conditions, the U.S. natural gas delivery system met the challenges posed by last winter's polar vortex and appears ready to handle similar tests in the future, the American Gas Association (AGA) said.

In a 93-page report released Monday, AGA said the 2013-2014 winter season set high consumption records in markets across the country, but advanced planning by utilities allowed additional resources to be available during the peak demand periods, which suggests the entire system is working effectively.

"America's natural gas utilities prepare every year, knowing that the eventuality of an extraordinary winter may be just around the corner," AGA Chairman Gregg Kantor said. "Utilities plan all year for the possibility of extreme temperatures and employ a portfolio approach to gas purchasing and storage utilization, with the idea of meeting customer requirements affordably even on the coldest days of the year.

"Before last year's extraordinary winter concluded, LDCs [local distribution companies] were already preparing for the next winter cycle. Reliable performance is what our customers have come to expect from us, and you can't get there without this level of planning and preparation."

According to AGA, the last winter season was second-coldest the nation had felt in 29 years, posting temperatures 8% below normal from November 2013 through March 2014. During that five month period, total U.S. natural gas consumption ranged from 68 Bcf/d on a warm day in March to 139 Bcf/d in January. A record-setting upper limit for single day consumption was set on Jan. 7.

"Daily consumption levels reached record highs also in the residential, commercial and power generation markets in January," AGA said, adding that January "also saw the highest winter month load for electricity on record, which resulted in the largest natural gas flows to power generation to date during a January month.

"In fact natural gas demand by the electric power sector was 3 Bcf/d higher than the prior five-year average. Industrial demand was also above average, consistently 3 Bcf/d higher in January, compared to the five-year average for the same month."

AGA said natural gas supply assets were utilized more fully during the past winter season, compared to recent winters. A survey conducted by the organization of 84 member companies found that utilities used 88% of their supply assets this past winter, compared to 65-75% utilization recorded in previous surveys.

"Today natural gas utilities make system integrity choices during peak winter demand, driven by not only residential and small commercial heating loads but also electric power generation requirements and industrial consumption," AGA said. "This shift in the natural gas market during the past decade begins to create an appreciation for system reliability and market stability for customers, even though there is increased competition for natural gas supply from all demand sectors."

AGA CEO Dave McCurdy concurred. "A new bar has been set," he said. "Our nation has an incredible abundance of natural gas and a pipeline network that is the safest energy delivery system in the nation. As more homes and businesses continue to rely on natural gas, and we see increased and strategic use of American natural gas across all sectors, we are confident that utilities will continue their record of reliability, delivering clean and affordable energy."

According to AGA, more than 3.0 Tcf of working gas -- a winter heating season record -- was supplied to the pipeline grid during the aforementioned five-month period. Meanwhile, natural gas prices kept to a narrow price range compared to previous years when prices fluctuated.

"This relative stability does not imply that price movements were non-existent," AGA said. "As cold temperatures continued through February, cumulative draws on flowing gas and storage assets resulted in price jumps for both the Henry Hub spot and contracts for next-month delivery. For three days, futures prices sat above the $6/MMBtu mark, then fell quickly to $5/MMBtu and back toward the $4 area.

"These short-term price movements were in part a function of persistently high demand, temporary disruptions to flowing gas, and in some cases, constrained storage supplies. They served as signals from traders to suppliers -- in particular those with storage assets -- to push volumes into the market."

AGA found that 63% of its surveyed companies had encountered upstream pipeline operational flow orders (OFO), mechanisms that protect pipeline system integrity but which also impact LDCs' systems. AGA said the median number of OFO notices was eight, with an average duration of just above 3.5 days.

Although several LDCs had no choice but to curtail service to interruptible customers on at least a temporary basis, AGA said a majority of companies reported that the number of customers who lost service had either not changed, decreased or there were no interruptions at all.

"This winter, the median number of interruption notices per LDC was five, and three fourths of companies initiated 10 or fewer interruptions," AGA said. "The median duration per interruption was two days, and nearly two thirds of companies reported average durations of two days or less.

"In all, the median proportion of interrupted gas relative to total utility gas deliveries was 2%. Generally, interruptions were relatively short, impacting a small number of customers as well as minimal deliveries."

Gas prices rose only 3% from the baseline price during the last winter season, AGA said, to a level that was still below what households paid during the winters from 2004 to 2012. Residential customer bills increased 10% from the previous winter, but that primarily reflected higher consumption levels. "To put it in perspective, natural gas bill increases averaged $60 per winter season or about $12 per winter month," AGA said. "In fact, natural gas often remains the low-cost option for households."

According to AGA, the United States is now producing approximately 14 Bcf/d more on a daily basis than during the winter of 2002-03, which was a similarly cold winter season. Natural gas reserves and working gas storage capacity have also increased -- by nearly 63% and more than 18%, respectively -- during the past decade.

"This winter was not only a validation of years of efforts by utilities, pipelines, producers and regulators, it was a signal that continued investments, planning and analyses are prudent and necessary as we begin to understand this era of resource abundance and accompanying opportunities for our economy," McCurdy said. "We expect the trend of greater demand to continue, and it will be accompanied by substantial growth in domestic natural gas supplies and increased infrastructure development to deliver this gas to more customers."

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