Newspaper article THE JOURNAL RECORD

Natural Gas Industry Trying to Hold Own against Cheap Oil / Prices Down

Newspaper article THE JOURNAL RECORD

Natural Gas Industry Trying to Hold Own against Cheap Oil / Prices Down

Article excerpt

DALLAS - After oil prices plunged last January, the San Diego Gas and Electric Co. stopped buying natural gas for the first time in years and substituted lower-cost fuel oil to fire up its electric generators.

In mid-April, however, even though oil prices had continued to fall, San Diego Gas got an even better deal from its former natural gas supplier, the Southern California Gas Co., so it switched back.

The California story is being repeated around the country as the natural gas industry tries to hold its own against cheap oil, and that has sent gas prices plummeting.

Spot market prices have dropped 34 percent, to $1.26 per million British thermal units from $1.90, since the start of this year, according to Natural Gas Week, a trade newsletter. This follows a 33percent decline in 1985.

The competition from lower-priced oil could not have come at a worse time for the natural gas industry. New Federal rules, which eased both pricing and transportation controls, were already turninga tightly regulated business into a tough, competitive one.

""The gas industry is going through a transition to a much more competitive environment,'' said Richard Itteilag, an industry analyst for the American Gas Association, a trade group in Arlington, Va., that represents major utilities and pipeline companies. ""We're seeing a much quicker response to alternate fuel prices.''

But while deft price reductions, like those in the San Diego Gas case, are helping many companies in the gas supply chain to hold customers and stay in business, the upheaval is proving fatal to others.

Industry trade groups say no figures are available, but they believe that of the 12,000 gas producers operating in the United States last year, dozens, and perhaps hundreds, have gone out of business.

Most producers say they are unable to make money when spot prices remain below $2 per million BTU's - where they have been all year. (A British thermal unit is the amount of heat needed to increasethe temperature of a pound of water by one degree Fahrenheit.)

T. Boone Pickens, chairman of the Mesa Petroleum Co., one of the nation's largest independent producers of natural gas, said many smaller producers had been forced into bankruptcy because some pipelines had refused to pay for supplies of higher-priced gas they agreed to buy several years ago. …

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