Gas surplus in US accentuates marketing maze

Like the product itself, the subject of natural gas marketing may seem to have a soporific effect -- as long as rising prices don't startle customers into alertness. That shouldn't happen anytime soon. But within the industry, marketing is a very contentious issue.

The industry is divided among producers, who own or lease vast tracts of land, prospect for gas, and then sell it; pipeline companies, who operate big delivery networks; and gas utilities or distributors, who sell to homes and factories. Some corporations are integrated, meaning they produce, deliver, and market gas. Many others just have one piece of the action.

Producers naturally want high prices for their product and low -- or simply competitive -- transmission costs. Deregulation helps producers; the gas bubble hurts.

Pipelines want to be able to charge what the market will bear for the virtually exclusive service of transporting gas. Because pipelines are the main way of delivering gas, distributors often have a lock on producers and customers.

Gas utilities naturally want low-cost gas. So do customers. Free-market conditions mean higher prices; but the gas bubble has mitigated the impact.

Gas interests face a key decision today on whether the Federal Energy Regulatory Commission, which oversees the industry, will continue a program that has helped producers move gas that otherwise might not have found a market.

The FERC provisions -- known as ``special marketing programs'' and ``blanket certificates'' -- were designed to help pipelines stem a widespread loss of sales caused by sagging demand and fuel switching by industrial users.

Earlier this month, a federal appeals court struck down one marketing-incentive program and gave the FERC until today to show why another should not be voided as well.

Producers want the program continued. Pipelines are blas'e about it; many would rather see it ended. Some customers could face higher prices without the program. The difference in views is typical and underscores a keen struggle between producers and distributors.

In general, complains Nicholas J. Bush, president of the Natural Gas Supply Association (NGSA), which represents producers, the distribution and pipeline companies are not cutting transmission costs as they should; hence, they're awash in cash and invitations to mergers.

On May 2, Internorth Inc. and Houston Natural Gas Corporation agreed to a $2.3 billion merger that would result in the longest pipeline network in the US. Two months earlier, Coastal Corporation and American Natural Resources agreed to a $2.5 billion merger.

The NGSA wants deregulation of old gas contracts as they expire so that it can get market rates for all gas produced. The American Gas Association, which represents pipeline and transmission companies, does not support that. Neither do customers who benefit from cheap gas from old, regulated fields.

But NGSA and AGA agree on one thing: Awash in gas, they want Congress to repeal the 1978 Fuel Use Act, which barred gas from being used as an electric-generating fuel in plants constructed after 1977.

Though it is unlikely that specific legislation will rescind the act this year, industry officials think they might succeed in getting a rider to do so attached to a congressional bill.

Many electric utilities, however, which have committed vast sums to nuclear and coal plants, oppose repeal of the act, fearing that it will make their electricity costs uncompetitive with cheaper, gas-fired power.