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U.S. ENERGY INFORMATION ADMINISTRATION WASHINGTON DC 20585 FOR IMMEDIATE RELEASE JANUARY 7, 1997 States Test Giving Residential Natural Gas Customers Maryland, Pennsylvania, New York, and California are among a number of States currently experimenting with pilot programs to bring benefits of industry restructuring to the local level by allowing residential customers to buy natural gas directly from third-party marketers. Traditionally, local distribution companies (LDC's) have provided "bundled" services to residential customers -- combining gas sales with other necessary services such as storage and distribution. According to the latest Energy Information Administration analysis of the natural gas industry, Natural Gas 1996: Issues and Trends, released today, these pilot programs experiment with "unbundling" at the residential level--that is, allowing customers to shop around for the best gas purchase deal, while paying the LDC separately for distribution and other service costs. The goal of these programs is to lower prices to consumers by increasing competition among natural gas retailers. Other States experimenting with residential pilot programs include Connecticut, Massachusetts, and New Hampshire in the East, and Ohio, Wisconsin, Iowa, Montana, and Wyoming in the Midwest and West. These States, plus at least 13 others, have also initiated similar programs for small commercial customers. Taken together, these programs represent State regulators' attempts at finding ways to pass the benefits of restructuring down to the "little guys." In the report, EIA also examined the growth of market hubs or centers that provide buyers and sellers a range of choices in the purchase and sale of natural gas and related services. Strategically located near pipelines and with access to storage facilities, they expand the reach of prospective buyers and sellers, permitting markets to develop for the trading of natural gas volumes, storage, and transportation capacity. Of the 39 market centers operating nationwide, 27 began operations in 1994 or later. As market centers continue to grow and mature, they will tend to increase the industry's overall efficiency, potentially resulting in lower prices and more reliable supply for all gas customers. EIA assessed a number of key trends, including recent price phenomena. While the 1995 average wellhead price declined 16% to $1.55 per thousand cubic feet (Mcf), monthly wellhead prices have generally climbed since the summer of 1995. Over the period 1990 to 1995, the cost of gas to final consumers dropped (in 1995 dollars) -- by 10% for residential customers and 36% for electric utilities. Overall end-use consumption continues to grow, as it has every year since 1986, increasing 4% in 1995 and 3% through November 1996. Natural gas production during 1996 is on track to reach its highest level since 1981. Natural gas reserves increased in 1995 for the second year in a row, for the first back-to-back increase in year-end reserves in 28 years. Other key issues and findings: * March 1996 working gas storage levels reached a record low, prompting 20% greater refill activity from April-September 1996 over the same period in 1995. Although EIA estimates stocks at the beginning of the 1996-97 heating season to be 7% below last year's level, this level still would have been sufficient to meet the winter demand experienced in the past three heating seasons. * New and expanded storage facilities added 1,395 million cubic feet to daily deliverability in 1995, an increase of 2 percent over the 1994 level. Most of the increase is in new, high-deliverability, salt cavern storage in Texas and Louisiana. * As transportation contracts expire, gas pipeline companies are seeing more and more customers (shippers) renewing for less capacity than before, thereby turning back formerly contracted capacity to the pipeline companies. This "capacity turnback" trend has many in the industry concerned because approximately half of current transportation contracts will expire by December 31, 2001, with the potential for hundreds of millions of dollars of reduced annual revenues for pipeline companies. * One relatively new industry procedure allows shippers to resell pipeline transportation capacity they have contracted for but are not using. The market for this "released" capacity has grown steadily since its inception in 1993 and has generated nearly $1.2 billion in revenue to releasing shippers. But average rates for released capacity are still well below maximum allowable rates. In the 1995-96 heating season, rates were discounted an average of 65 percent from the maximum, while during the 1995 nonheating season, rates were discounted 83 percent. * The behavior of natural gas futures prices on two major exchanges has highlighted the difference between eastern and western supply markets. The New York Mercantile Exchange (NYMEX) futures contract associated with the Henry Hub in southern Louisiana is the benchmark for eastern markets. The newer Kansas City Board of Trade (KCBOT) contract, pegged to the Waha Hub in west Texas, as well as the even newer NYMEX contract for delivery through the Permian Pool in west Texas, tend to characterize western markets. From August through December 1995, prices for the nearby contract (for delivery the next month) rose at both the Henry and Waha hubs. However, prices for the Henry Hub contracts almost doubled, compared with a 50 percent increase for Waha Hub contracts. * Several recently completed and proposed pipeline expansions address the bottlenecks between western supply areas and eastern markets. During 1995, several Texas intrastate pipeline companies increased capacity between the West Texas Waha area and market centers located in eastern Texas, for further transport to Louisiana. An expansion of 350 million cubic feet per day is planned from the San Juan Basin (New Mexico) production area to the Waha area. The report may be accessed electronically from EIA's World Wide Web site at the following address: http://www.eia.doe.gov/oil_gas/natgas/it96.html. Copies of Natural Gas 1996: Issues and Trends will be available from the U.S. Government Printing Office, 202/512-1800 or through EIA's National Energy Information Center (NEIC), Room 1F-048, Forrestal Building, 1000 Independence Avenue, SW, Washington, D.C. 20585, 202/586-8800, in early January. Press copies will be available through EIA's Press Contact. The figure referenced above may be viewed on EIA's Web Site in the press release section or it may be obtained from EIA's Press Contact.
EIA Press Contact: Thomas Welch, 202/586-1178 EIA-97-04 Contact:
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