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 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 this week.

The EIA reported that marketed production of gas from 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 fall 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 --- saw large 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.

Significantly, the number of gas and gas condensate wells totaled 307,449 last year, a decline of 9,480 (3%) 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 noted.

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 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 the EIA.

©Copyright 2000 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.