Natural-Gas Prices Keep Falling as Deregulation, New Drill Bits Catch On

WINTER FUEL SAVINGS

DESPITE winter's chill, hot competition within the natural-gas industry packs some cheery news for millions of American consumers.

Enlivened by new technology and deregulation, the industry is sinking fresh wells, building pipelines, cutting costs - and passing on savings to customers. Natural-gas prices in the past decade have fallen more than 24 percent for residential gas users and 57 percent for industrial customers, according to the American Gas Association (AGA) in Arlington, Va.

Price declines in the comparatively clean fuel are likely to continue, since pipeline capacity is expected to rise 9 percent by 1998. Moreover, new wells in Western Canada, the Rocky Mountains, and the Gulf of Mexico promise a rich supply for years to come, say industry analysts and executives.

Competition has yet to fully shake out excessive costs among local gas companies. Still, "overall costs have come down, supply prices have come down, distribution of the market has benefited the consumer, and there is no real reason to believe these trends won't continue," says Gary Bartlett, executive vice president of Natural Gas Pipeline Company, a subsidiary of MidCon Corp. in Lombard, Ill.

Nationwide, there are 51 million residential natural-gas customers, representing 53 percent of the household heating market.

Windy city symbolizes boom

Chicago epitomizes the industry's verve. The city - already a robust hub for national shipping, railway, and airline service - is emerging as a center for a expanding gas-pipeline grid. The Chicago area is the junction for four out of the 40 new or expanded major pipelines on industry planning books.

Moreover, Chicago will handle most of a projected 27 percent surge in natural- gas imports from Canada by 2005, according to AGA. And it is an attractive point for future gas transport to the Northeastern states, a promising and comparatively undeveloped market.

"Chicago is going to grow in importance," says Mr. Bartlett.

The natural-gas boom is partially driven by sheer ingenuity. The industry this decade has cut risks and costs, and boosted returns, by making a "quantum leap" forward in technology, says Edward Kelly, associate director of North American gas at Cambridge Energy Research Associates in Cambridge, Mass.

The high-tech bag of tricks includes new drilling techniques and equipment that enables a bit to drill in all directions and vastly expand the area a wellhead can tap. Moreover, new techniques in seismic testing allow companies to plot three-dimensional schematics of underground sites.

Technology reduces failure

In the 1990s, companies possessing such know-how have tapped gas fields that were once deemed too risky or prohibitively expensive. Meanwhile, the failure rate of new wells has fallen from 80 percent to about 25 percent.

Above ground, deregulation in the past 15 years has given a stiff jolt to natural-gas companies at all phases of production and service. Federal and state lawmakers began by loosening regulations and opening up the industry to competition at the wellhead and have steadily worked their way downstream toward the consumer, say executives and analysts.

Facing harsh competition, industry players have made sharp cuts in staff. Indeed, many of the 450,000 jobs eliminated in the oil and gas industries in the past 15 years were lost because of deregulation, Kelly says.

Around Chicago, MidCon plans to reduce its payroll by 400 employees, or 20 percent. The severe staff cutback is typical in the industry.

Next: local competition

The next and last arena for greater competition is among the local gas companies that pipe gas on its last leg to consumers.

"Deregulation has made the whole market more competitive and obviously helped the consumer," says Earle Forgues, vice president of marketing and resource development at Crestar Energy Inc. in Calgary, Alberta.

Crestar is part of a consortium of 22 Canadian companies that plans by 2000 to build a $2.2-billion, 1,800-mile pipeline from northern British Columbia through Alberta to Chicago. The capacity of the pipeline, at 1.2 billion cubic feet daily, could meet Chicago's natural-gas needs on a peak winter day.