North American natural gas markets face new challenges with greater demand and a need for infrastructure, but the industry -- and regulators -- should learn from past struggles and let the market help solve the problems, according to Mark Radtke, president of Integrys Energy Services, Inc.
Speaking last Tuesday at the LDC Forum Mid-Continent in suburban Chicago, Radtke said today's market shows parallels to conditions it faced in the late 1970s, when a series of government regulations were put in place in reaction to high prices and shortages. "It took 20 years to rebuild demand," Radtke said, and addressing current problems with nothing more than further regulation could again hobble the industry.
"We now find ourselves in a new market paradigm," Radtke said. "As we face this new paradigm, it is important not to forget the lessons of the past.
"Today we have the opportunity to respond with free market alternatives, alternatives that continue to promote the use of this clean fuel. Doing that will certainly take investments in infrastructure. It will also require efficient management."
Radtke maintained the market is working. "Concern over production decline has driven up prices and created an incentive to search for new sources. We have added more natural gas rigs since 2005 than in the previous 10 years -- 586 versus 462, to be precise. These new sources bring with them a higher cost of production...and new locations...that will require new pipelines."
Until those pipelines and other technologies are updated, price volatility will remain a factor in the market. Volatility "could be much greater than even after Katrina," he said, if North America experiences an unusually cold winter or other extreme weather in the next few years.
In his remarks, Radtke echoed comments made during the first day of the forum by Shell Oil Co. President John Hofmeister, who said the industry passed a "tipping point" two years ago, and needs to rethink energy-related public policies (see related story). Like Hofmeister, Radtke said the growing need for liquefied natural gas (LNG) and regasification facilities is being slowed by regulation.
"Even though we have respectable amounts of new production anticipated, it does not meet the growing demand for natural gas in this country. Simply put, we need to supplement North American supply with liquefied natural gas," Radtke said.
"The world has a growing thirst for LNG. LNG is a global market. We will be competing with Europe, China and India for those supplies." The market is transforming, with global fundamentals increasingly driving domestic prices, and LNG supplies quickly shifting to whichever market offers the highest price, Radtke said.
Traditional production sources of natural gas in Western Canada and portions of the U.S. will plateau or decline through 2015, and new sources will require infrastructure investment, he said. "The good news is we are finding new supplies to offset the decline of our historic production and meet demand. The bad news is that the supply comes from new locations requiring new pipeline capacity."
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