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2.2.03 Natural gas a hot commodity Despite predictions of natural gas shortages, users of the fuel in the Midlands shouldn't be too concerned about long-term supplies, according to government estimates and those in the industry. "We have not found any real difficulty acquiring gas supplies," said Jerry Gohr, assistant general manager of operations at the Metropolitan Utilities District. The District serves nearly 190,000 customers in the Omaha area. A recent story in USA Today quoted experts as saying that falling U.S. production and the difficulty in getting new natural gas could create a severe supply problem or highly volatile prices for the next several years. But industry estimates, as well as those of the federal government, indicate that gas supplies should be adequate, at least through 2025. This is not to suggest there aren't problems in the industry. Natural gas is a popular fuel, and demand for it is growing. The American Gas Association said natural gas now provides 25 percent of the nation's total energy needs; by 2020 it will supply 28 percent. Residential and commercial customers account for 37 percent of its use; industrial use amounts to 40 percent. Electric utilities, which now use 13 percent of the natural gas supply, are leading the growth in demand. They are being forced by air quality regulations to switch from coal to cleaner burning natural gas. "A major consideration for energy markets until 2025 will be the availability of adequate natural gas supplies, at competitive prices, to meet growth in demand," according to the Energy Information Agency of the U.S. Department of Energy. "It's not necessarily a resource (supply) issue," said Fred Hunzeker, president of Tenaska Marketing Ventures, a unit of Omaha-based Tenaska Inc. "The resources are there. It's a capital allocation issue. You've got to allocate capital back to exploration, which will happen with higher prices." Hunzeker's firm sells or manages more than 2.8 billion cubic feet of natural gas a day. It buys natural gas from producers and sells to fertilizer plants, utilities like M.U.D. and to power plants. It has annual sales of more than $2 billion. The total U.S. natural gas resource base, including proved reserves - those in known and developed reservoirs for which wells have been drilled and production rates determined -- is 1,258 trillion cubic feet, according to an estimate by the Potential Gas Committee, directed by the Colorado School of Mines and made up of 147 members from the natural gas industry, government and other schools. At current levels of domestic production, the committee said, that means the United States has about a 63-year supply of natural gas. The American Gas Association said experts now believe the amount of natural gas still underground is larger than they thought it was 10 years ago, although the association didn't say how much larger. Those resources may be put within reach in coming years as technology improves, said M.U.D.'s Gohr. "There are a lot fewer dry holes drilled today than 20 years ago because of advances in (such things as) seismic technology," he said. "There's a lot more surety that when they start drilling a gas well they're going to find gas today, and they're not going to waste the money needed to pay for that well." The current amount of exploration for new natural gas supplies has sparked the optimism among industry officials. The American Gas Association said large deposits of natural gas are found in almost half of the 50 states, but five states -- Texas, Oklahoma, Louisiana, New Mexico and Alaska -- hold more than half of the nation's total natural gas reserves. The number of drilling rigs now looking for new supplies in the 48 contiguous states is between 700 and 750, a "very good level," Gohr said. Other rigs are also active in Canada, but it's the domestic count that is important because 85 percent of natural gas used in the United States is produced in this country. The American Gas Association said that unless public policies and personal attitudes change about bringing fresh supplies to market, a "mismatch" between growing demand and supplies will lead to higher prices during the next 10 to 15 years. The natural gas market is one of booms and busts, one of delicate balances. Hunzeker, of Tenaska, calls it a "market looking for equilibrium." "We're coming off of a long era, back to the 1980s and 1990s, of oversupply of natural gas," he said. "Natural gas producers are just like farmers. They can't control their price. All they can control is their production." A slowdown in drilling -- caused by low prices to producers -- in 1998 and 1999 was a factor contributing to the scarcity of gas supplies in the winter of 2000-2001, the Energy Information Administration said. That caused high gas prices, leading to the boom in gas well drilling in 2000 and 2001, the agency said. "We're at a transition phase here," Hunzeker said. "We're going to see some wild volatility here as the market finds its equilibrium." Because of the swiftly changing market, "it's very difficult to predict pricing next week, let alone 25 years down the road," Gohr said. Utilities like M.U.D. feel somewhat protective of their natural gas supply as they see it increasingly being diverted to uses other than heating homes. "We feel that natural gas is a premium fuel that should be used more for residential heating and for industrial uses other than power generation," Gohr said. A growing number of power plants being built are using natural gas to generate electricity. The Omaha Public Power District, for example, is building two natural gas-powered turbines near Plattsmouth that will be used during periods of peak demand for electricity. The Energy Department said that total demand for natural gas is projected to increase at an average annual rate of 1.8 percent between 2001 and 2025 -- from 22.7 trillion cubic feet to 34.9 trillion cubic feet -- primarily because of rapid growth in demand for electricity generation. That means that the natural gas share of electricity generation will increase from 17 percent in 2001 to 29 percent in 2025. Another big user of natural gas is the fertilizer industry. Natural gas is the main ingredient in anhydrous ammonia, which is used to make nitrogen fertilizer. "The domestic fertilizer business is in tough times," Hunzeker said. "The industry does not like these $4 (per thousand cubic feet) and $5 prices (for natural gas). It raises the price of fertilizer, which destroys demand for fertilizer." If natural gas prices increase too much, he said, companies "will be driven overseas. They'll make fertilizer in Trinidad and ship it here on barges." Despite growing demand for natural gas because it's a clean, environmentally friendly fuel, Gohr, of M.U.D., feels "very confident that natural gas will be around for many, many years." "The proven reserves are such that they can carry gas supplies for our customers into the next decade definitely." |
The Metropolitan Utilities District uses a liquefied natural gas plant on some of the coldest winter days. It enables the us to buy gas at lower rates, liquefy it, store it and then return the fuel to its gas form for use during high-demand periods. |
