FERC Finds Gas Supply Rises, Price Drops

By Published On: November 20, 2009

Natural gas prices are at record lows and domestic reserves at record highs, resulting in less price volatility, according to a Federal Energy Regulatory Commission November 19 report. Known domestic gas resources represent 100 years of supply, Steven Reich, FERC deputy director of the Office of Enforcement’s Energy Market Oversight Division, told federal regulators. “This is a remarkable story,” commented Jon Wellinghoff, FERC chair. Commissioner Mark Spitzer added the finding was “good news for consumers and a vindication of FERC policies” which included policies to incent investments in gas infrastructure. Prices are expected to be moderate for consumers this winter given average prices in storage dropped to $3.45/MMBtu from $9.84/MMBtu last year, Reich pointed out. In addition, lower consumption of gas and electricity is predicted over the next six months. Higher volumes of storage help tamp down spikes, which are driven principally by extreme weather. Utility coal storage inventories also are at record highs, Reich noted. The abundance of gas is attributed mainly to increases in successful domestic gas harvesting from shale. Prices are also affected by the 19 percent increase in liquefied natural gas imports in 2009. Pumping up supplies, according to Reich, were 1.2 billion cubic feet of LNG imported this year--above last year’s imports, but below predictions. FERC also noted that the financial spread between oil and natural gas prices increased, making natural gas comparatively more attractive than oil-fired power. As of September, oil was five times the price of gas. Traditionally, natural gas prices have closely tracked oil prices. In other news, the commissioners voted to investigate whether rates of return for three natural gas pipeline companies, estimated at more than 20 percent, are just and reasonable. It appears that the three gas companies at issue may be “substantially over-recovering their cost-of-service,” Wellinghoff said. The three companies targeted for investigation for possible returns that exceed levels allowed by FERC are Natural Gas Pipelines, Northern Natural Gas Co. of America, and Great Lakes Gas Transmission. Natural Gas Pipelines’ return on equity was estimated by FERC staff at 24.5 percent, 24.36 percent for Northern, and 20.82 percent for Great Lakes. The revelation was attributed to FERC’s overhaul of its reporting cost service and revenue form pursuant to a March 2008 order. It seeks to improve the transparency of financial reporting for interstate gas pipelines and to better reflect current market and cost information.

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