Lower Prices, Consumption And Near-Term Construction Lessens 2010 Spending Levels

Late figures from the U.S. Energy Information Administration (EIA) indicate that close to 70 million customers rely on the nation’s natural gas distribution network to deliver fuel to their home or business.

Natural gas is delivered to customers through a 2.3-million mile underground pipeline system that includes:

• 2 million miles of local utility distribution pipes (1.2 million miles of utility mains, plus 800,000 miles of utility service lines); and
• 300,000 miles of transmission lines.

These customers consume 23.2 Tcf of natural gas, accounting for 24% of the total energy consumed in the U.S. yearly. More than 1,500 companies carry out the natural gas distribution process and vary in size and type. They include LDCs serving millions of customers, as well as those that serve less than 100. They also include mainline pipeline companies that provide direct service mostly to large volume end users, although the bulk of the natural gas transported by pipeline usually reaches end users via LDCs.

Spending Trends
The American Gas Association (AGA) reports that customers can expect lower bills on average this winter compared to last. Plentiful domestic supplies and lower wellhead prices will lower bills and provide relief for natural gas customers struggling in a troubled economy. Supporting this is the EIA’s Short Term Energy and Winter Fuels Outlook released Oct. 6 which indicates energy prices remain volatile, reflecting uncertainty or risk in the market.

Natural gas prices have dropped considerably since the last report. On Oct. 14, the Henry Hub spot price was $3.82 per MMBtu, which was 12 cents, or 3.2%, higher than the price of $3.70 a week earlier. The following week, the price was $3.82, or 42% lower than the price of $6.58 per MMBtu in October 2008.

The EIA report anticipates consumption to decline by 2% in 2009 and 0.2% in 2010 as weak economic conditions hamper the industrial sector, where data show consumption is down by 12.4% through July compared to last year. With lower consumption in the residential and commercial sectors as well, natural gas use in the electric power sector continues to serve as the only demand outlet for increased supplies.

Lower prices and consumption coupled with lower near-term new construction spending to rehabilitate, repair and replace existing systems, is expected to slightly reduce overall spending levels in 2010. For this reason, Pipeline & Gas Journal’s latest survey figures indicate gas utility spending to serve new customers and rehabilitate, repair and replace mains and services, meters, valves, regulators, cathodic protection, SCADA networks and peak-shaving facilities will total about $11.9 million in 2010, compared to $12.1 billion this year.

These spending demands come at a difficult time for the distribution sector. Deliveries by LDCs have decreased by 15% since 2000 and some large-volume customers have switched to mainline pipeline systems. Nonetheless, the LDC remains the backbone of the natural gas distribution network.

Corrosion Costs
As to higher spending for LDCs in some sectors, corrosion costs continue to be a costly problem for all facets of the oil and gas industry. The total annual direct cost to corrosion on the nation’s natural gas distribution system is estimated at $5-6 billion.