Demand for natural gas in the Pacific Northwest will remain flat, trending slightly downward from the 2000-2001 wholesale energy market meltdown, but volatility will continue to be an issue for some utilities and their largest customers, according to a preliminary 2007 gas demand outlook from the Northwest Gas Association.

The report was outlined at a workshop Tuesday held by the Oregon Public Utility Commission (PUC). Dan Kirschner, the association’s executive director, made the presentation to the three PUC commissioners and their staff.

For peak demand, Kirschner cautioned that there is “not much head room” between the capacity available and the expected peak-day total demand for the four-state region as a whole. “It isn’t cause for concern, but it is one of those flags that causes our members [major regional pipelines and local distribution utilities] to plan on how they will meet their individual peak loads going forward,” Kirschner said.

Overall, the region is “staying the course” — continued moderate growth in gas demand and ever-increasing growth in gas for electric generation as the Northwest saw last year, Kirschner said.

Noting that the increased dependence on gas in the region continues, Kirschner said total electricity and natural gas consumption are about equal. “There is a growing reliance on gas for electric generation in this region, and we see that continuing,” said Kirschner, noting there is a “little bit of increased volatility” in the use of gas for power generation.

Since 2000, the region has continued to see a decrease in the volumes of gas used for industrial operations, attributable to the crisis and the corresponding drop off of gas used for aluminum plants, many of which went out of business or greatly decreased their operations. The void has been filled by the electric generators, but with quite a bit of volatility during the past seven years, he said.

Industrial use accounted for nearly half (45%) of the region’s gas use prior to 2000; currently it represents a quarter (25%) of the Northwest natural gas consumption, Kirschner said, and it isn’t expected to rise in the industrial sector until the 2011-12 time frame.

“Each year since 2000 the industrial sector has seen some erosion in gas use — minimal — and it has been essentially flat since it took the big drop,” he said. Besides the big aluminum smelters going off-line, a lot of industrial energy efficiency measures came into play after 2000. Basically, we have seen no growth in the industrial sector.”

Kirschner stressed for the Oregon regulators that the Northwest is interconnected to the greater western North American natural gas pipeline grid, and as such, major new infrastructure or supplies from the Rockies, Alaska or liquefied natural gas (LNG) imports — whether or not they come directly to the region — affect the Northwest supplies. A West Coast LNG terminal anywhere should help the Pacific Northwest, although one in Oregon would be the best solution for the region, he said.

Any supplies from Alaska or the western Canada frontier would not be counted upon in the region before the next 10 years, Kirschner said.

“The marginal supply source [for price] today is LNG,” he said. “Wherever LNG lands in North America, we’ll benefit here in the region, but studies validate that the closer the receipt point is to our area the more direct benefits we would receive. The market ultimately will determine which and how many LNG terminals [of five proposed for Oregon] will eventually get built.”

The Northwest Gas Association, headquartered in the Portland suburb of Lake Oswego, OR, includes nine members: Avista Corp., Cascade Natural Gas Corp., Duke Energy Gas Transmission, Intermountain Gas Co., Northwest Natural Gas Co., TransCanada GTN System, Puget Sound Energy, Terasen Gas, and Williams Northwest Pipeline Co.

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