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U.S. ENERGY INFORMATION ADMINISTRATION Natural Gas Shippers Could Turn Back About 20 Percent of
Firm Transportation Capacity as Contracts Expire As contracts for the interstate transportation of natural gas expire and come up for renewal, some transportation capacity may no longer be needed by the current capacity holders and could be turned back to pipeline companies. Based on shipper's use of contracted capacity over the last several years, the Energy Information Administration (EIA) estimates that 18 trillion Btu per day of firm transportation capacity will be turned back to pipeline companies as current contracts expire over the next few decades (Figure 1). This is roughly 20 percent of the total 97 trillion Btu per day of firm capacity held on July 1, 1998, for the sample of 64 pipelines analyzed. Some portion of the capacity that is turned back to pipeline companies will likely be picked up by other customers, depending on future growth in demand for natural gas, infrastructure growth, location and price for the capacity, and other market changes. Although the analysis did not assess how much of the turned back capacity will be remarketed, even if all were remarketed, some loss of pipeline company revenue could occur, because pipeline companies might need to offer discounts to attract new buyers and might not be able to recover their capital costs. This potential lost revenue could become a concern to both the pipelines and to remaining holders of transportation contracts whose rates might go up, according to "Contracting Shifts in the Pipeline Transportation Market," an analysis released today by the Energy Information Administration. The terms and costs of transporting natural gas along the interstate pipeline grid are specified in contracts between pipeline companies and shippers. Contracts reserving the right to transport a given amount of gas through a pipeline without interruption, i.e., "firm transportation capacity," are typically more expensive than interruptible transportation contracts, but provide a greater level of reliability. Many of the contracts for firm transportation have been in place for several years and may no longer reflect current market conditions as restructuring of the industry has led to increased competition among companies supplying gas to customers. In recent years, an increasing percentage of the gas moving through local distribution systems is owned by companies other than the local distribution companies (LDCs), who held contracts for over half of the firm transportation capacity on July 1, 1998. As a result, the LDC's need for firm transportation has decreased. At the same time, natural gas marketers, who arrange the sale and, in many cases, the transportation of gas, have increased their share of firm transportation capacity from 21 percent in 1996 to 24 percent in 1998. The total amount of interstate transportation capacity under firm transportation contracts has remained fairly steady during the past 2 years at about 95 to 105 trillion Btu per day, or about three fourths of the transportation capacity of the interstate pipeline system, because of recently completed pipeline capacity and the remarketing of some of the unrenewed contract capacity. The analysis released today is the sixth release of seven analyses to be included in the upcoming report Natural Gas 1998: Issues and Trends, due for complete release in May 1999. This analysis, along with the other chapters released to date, can be accessed on EIA's Internet site at: http://www.eia.doe.gov/oil_gas/natural_gas/analysis_publications/natural_gas_1998_issues_and_trends/it98.html Printed copies of the full report will be available in May from the U.S. Government Printing Office, 202/512-1800, or through EIA's National Energy Information Center, 202/586-8800.
EIA Program Contact: Barbara Mariner-Volpe, 202/586-5878 EIA-99-12 Contact:
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