Blackouts of electrical power in the U.S. East this month show that work remains to be done in the growth market for natural gas. The work has a simple name: deregulation.
To be sure, there has been progress toward a fully connected system in which supplies of electricity and generation fuels respond swiftly to changes in demand. But the process is far from complete. On it depend future growth in demand for natural gas and a revival of fortunes for lately troubled U.S. producers.
Market growth
For many years, gas has been heralded as the clean-burning fuel of the future. Yet it is only recently that consumption of gas in the U.S. has climbed back to near the 22 tcf/year averages of the early 1970s.
But the trend has momentum. Some observers predict total U.S. gas consumption in 2010 of 30 tcf. The U.S. Energy Information Administration`s reference-case forecast puts the figure at 28 tcf but anticipates steady growth nevertheless. By 2020, EIA says, U.S. gas consumption will total 29.5 tcf if economic growth is low and 34.8 tcf with high growth.
Attainable or not, a 30 tcf market by 2010 has the advantage of round numbers. It works as a compelling vision, fulfillment of which depends greatly on movement of gas into the market for power-generation fuel. EIA expects that market, excluding cogeneration, to grow from 3.3 tcf in 1997 to 9.2 tcf in 2020.
Future demand for gas in power generation depends on a combination of increased utilization of existing gas-fired capacity and the need for new capacity, for which gas is now the preferred fuel. The need for new capacity will be a function of overall electricity demand growth, retirement of old coal and nuclear plants, and changes in overall capacity utilization rates. Those variables, in turn, depend on how electricity deregulation unfolds. Some versions are better than others for future gas demand.
Fuel selection, though, should not be the basis for official decision-making about power markets. It is unfortunate that the word "restructuring" seems to have displaced "deregulation" in descriptions of what`s happening. Deregulation is the superior goal.
Old laws, old regulations, and old business practices make either type of change difficult, of course. The biggest complication, because of the dollar amounts involved, has been treatment of stranded costs--investments in facilities made uneconomic by deregulation.
Still, the aim is basic or should be: the ability of consumers to choose among competing providers of electricity. From that simple aim flow the other legs on which a competitive market stands: freedom to enter the generation business and make use of the transportation network, unhindered flow of market information, and equivalency of the quality of service available on transmission and distribution grids. Industry change properly oriented to consumer choice will focus on goals such as those and will keep legitimate equity questions such as those about stranded costs in perspective. They also will not countenance mandates for specific generation fuels.
Deregulation progress
As of July 1, 20 states had enacted restructuring legislation. Apparently hoping to give the process a nudge, federal lawmakers have introduced or are drafting legislation that would centralize parts of the effort. And the Clinton administration has proposed a federal restructuring plan that, like many of the legislative initiatives, would guarantee a share of the power generation market for renewable fuels.
Such swerves away from the goal of an open and competitive market partly explain why electricity deregulation is not yet in sight. Gas industry participants intrigued by the vision of a 30 tcf/year market would help themselves by providing constant reminders that the destination of this journey is competitive choice and that the shortest route there is deregulation--not just restructuring--to the maximum practicable extent.
