By Ann de Rouffignac
HOUSTON, Apr. 2, 2001William Hobbs, president Williams Energy Marketing & Trade, a Williams unit, said the natural gas industry will lose market shareunless prices stabilize soon.
"If $5 to $10/MMcf gas prices continue over a period of time, natural gas will decline in use," Hobbs said at the Ziff Energy Group North American Gas Strategies Conference in Houston. "The ammonia, steel, and chemical industries can't survive on $5 gas. They are hurting."
By stabilization, Hobbs said prices should be $2.50-$3.00/MMcf and less volatile. The fabled 30 tcf market is price sensitive, he said. Unless the infrastructure, including increased reserves, is expanded quickly and decisively, the industry is risking another backlash against natural gas similar to what happened in the late 70s.
"We could even end up going back to a 21 tcf market," he said.
Power companies that are driving the march to the 30 tcf market are learning the hard way they can't assume the gas will be available at reasonable prices. Increased drilling, more reserves, and new technology that can help find more gas in existing or depleted areas is key, he said. Stabilization of prices and supply will be achieved once the infrastructure is expanded, including pipelines and storage, Hobbs suggested.
"We plan to expand our own exploration and production activities to cover a growing short position in natural gas," he said.
Hobbs blamed California's gas and power problems on inadequate infrastructure. "We need to move more rapidly to solve this," he said. Hobbs said there are 16,000/bcfd of announced pipeline expansions but only 7,000/bcfd of projects pending at the Federal Energy Regulatory Commission.
He predicted Williams' Kern River pipeline expansion into California, Independence Market Link pipeline projects in the Northeast, and Gulfstream project to Florida will be built.
In Hobbs's estimation LNG will supply one piece of the stabilization puzzle. Imports are projected to increase to 600 bcf in 2005 from less than 200 bcf in 2000. While it's an important piece of the US supply picture, it only it is a small piece, he said. He estimated LNG will serve only 2% of the overall gas-fired power generation market and will be used as a peaking fuel.
Hobbs predicted the convergence of gas and power companies will accelerate as power companies conclude the gas may not be there when they need it. As gas becomes a critical commodity for the 125,000 MW of new gas-fired generation expected to be built in the next several years, power companies will seek "gas company expertise," he said.
Hobbs cited as examples the joint ventures between AES Corp. and Williams and the mergers of Dominion Resources Inc. and Consolidated Natural Gas Co., TXU Corp. and Enserch Corp., Duke Energy Corp. and PanEnergy Corp., and PP&L Resources Inc. and Penn Fuel Gas Inc. The benefits from convergence include access to deregulated market experience, economies of scale/cost reductions, smoother earnings stream, and increased profits, he said.