Analysts expect inflow of new gas to begin in late `98

HOUSTON -- November 1998 will be a month to remember in the natural gas business.

Around that time, massive amounts of new gas will begin flowing into an already oversupplied United States, testing the nation's appetite for the fuel and, some analysts predict, driving prices below $2 per thousand cubic feet for a sustained period.

The new gas will come mainly from four areas: north from Canada through pipeline expansions already under construction; from deepwater projects in the Gulf of Mexico; from the Rocky Mountain basins where inexpensive gas has been trapped due to lack of transportation capacity; and from Canada's northeast provinces. In its most recent forecast, the Energy Information Administration of the Department of Energy estimated that the country's demand for natural gas in 1998 will be about 23 trillion cubic feet, while the 1998 supply will be about 22.85 trillion cubic feet. The agency recently lowered its demand numbers for 1998 by about 230 billion cubic feet because it expects to see less gas consumption in the fall, said EIA economist David Costello. Using the administration's forecast, about 620 billion cubic feet of new gas will hit the U.S. market next year, almost twice as much as is expected to be added this year. "I still think the market will be able to absorb the increases and then some," Costello said. Others disagree and say supply will outstrip demand and push prices to below $2 by the winter of 1998-99. A similar scenario played out in late 1993, when the nation's natural gas pipeline system added substantial capacity, said Michael Barbis, energy analyst with UBS Securities in New York. Coupled with a mild winter, prices tumbled. "We are talking about the same thing in `99," Barbis said."There is going to be more gas than demand can handle." The average gas price in 1996 was $2.41 per thousand cubic feet and is expected to run about $2.10 this year and $2 in 1998, Barbis said. "We don't have an official estimate for 1999, but I am telling people, don't be surprised to see $1.75," he said. "If weather is favorable, it could be more, but I doubt the number is going to have a two in front of it." The Alliance pipeline, which at 1,900 miles will be North America's longest pipeline, will move up to 2 billion cubic feet of gas per day into the Chicago area from western Canada. It is expected to come into operation in late 1999. In early November 1998, two major projects out of Canada -- expansions of the Northern Borders and TransCanada pipeline systems - - will begin bringing an additional 3 billion cubic feet of natural gas per day into the Northeast and Upper Midwest. Several pipeline projects have been announced that will move gas from the Chicago area into the Northeast -- including PanEnergy's 500 million-cubic-feet-per-day Spectrum project and Transco's and Coastal's 900 million-cubic-feet-per-day Independence pipeline. Those will come on line in late 1999. "We see Chicago emerging as the nation's major market hub," said Paul Ziff, president of Ziff Energy Group in Houston. "Every pipeline company worth its salt has some sort of project to move gas out of Chicago, either to the Northeast or to the east central part of the country." From the Sable Island area in Nova Scotia, the Maritimes and Northeast Pipeline will move about 400 million cubic feet of gas per day into New England, ending in Massachusetts. It is expected to begin service in November 1998. The TransCanada expansion will include five extensions off the main pipeline. The Portland extension, due to come on line Nov. 1, 1998, will branch off the eastern end of the TransCanada system and move gas into New England and Boston. It will have a capacity of 178 million cubic feet per day. The Iroquois extension will branch off the main system in upstate New York and move about 200 million cubic feet of gas per day into the New York City area. It will come into service in November 1999. The Millennium extension also will serve the New York City area, moving about 650 million cubic feet of gas per day there beginning in November 1999. The National Fuel Gas extension will move 115 million cubic feet of gas per day into Pennsylvania. It will begin service in November 1998. Finally, the Viking Voyager extension will branch off the Trans- Canada system near North Dakota's border with Canada and move about 1.2 billion cubic feet of gas per day into the Chicago area beginning in November 1999. "TransCanada is the single largest shipper of natural gas in North America for a single pipeline, about 7 bi less gas. While demand will be strongest in the Northeast and Upper Midwest during the dead of winter, getting enough gas to these areas will continue to be a problem, Ziff said. "What we saw last winter was that the gas wasn't always in the right place, and although the grid is connected, there is not enough surplus flexibility, particularly to move gas east to west," Ziff said.

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