GAS GROWTH SEEN HURT BY REGULATORY UNCERTAINTY
Demand for natural gas has failed to
grow in proportion to the decline in oil deliveries because of
concerns over unresolved regulatory issues in the United
States, said industry analysts and gas utility company sources.
    "Natural gas is not free to compete," said Larry Makovich,
director of utilities service at Data Resources Inc, "problems
on pipeline open access and take-or-pay liabilities still weigh
heavily on end-users' decision to switch to natural gas."
    A manager with an East Coast gas distribution company,
agreed that reluctance among end-users often stemmed from fear
of unresolved regulatory issues.
    "The fact that at the federal level open access is not yet
firmly in place threatens to impede free flow of natural gas
from producers to consumers," he said.
     Michael German, an economist with the American Gas
Association, said while a significant amount of gas was now
replacing oil in dual-fuel boilers, the progress of expanding
the marketshare of gas was slow. First quarter natural gas
consumption data is not available until June.
    In the first three months of 1987, residual fuel demand
fell by an average of 55,000 barrels per day, according to the
American Petroleum Institute. Natural gas, however, was not
able to take full advantage of the decline in oil consumption.
    AGA's German said that while industrial consumers were
concerned with regulatory issues in their long-range capital
investment decisions, in the dual-fuel boiler market relied on
spot purchases.
    "With all the capability of switching (from oil to natural
gas) already there, price of the fuel is the only concern," he
said, adding that compared with the same period last year,
January natural gas price at burner tip is 16 pct lower for
industrial users and 32 pct lower for utilities.
    German attributed the sluggish performance of natural gas
to lower demand in the utility sector as a whole.
    "March was warmer than normal, which cut down gas
consumption not only in home heating but also in electricity
generation," he said.
     In March, according to API monthly statistics, residual
fuel deliveries fell by 13.6 pct to 1.2 mln barrels per day
from the same period a year ago.
    While API specifically mentioned lower natural gas prices
had put residual fuel at a price disadvantage among electric
utilities and industrial users, industry analysts believed the
role of natural gas was over-stated.
    Makovich of DRI noted much of the decline in oil in the
fuel mix was taken up by new nuclear capacity coming on stream
in the last few years.
    Nuclear capacity rose nine pct in 1986, and he projected
the same rate of growth for 1987 and 11 pct growth in 1988. 
    In contrast, oil and gas together represented only 15 pct
of the fuel mix in 1986 and should decline to 13 pct by 1989,
he said. Within this sector, gas share fell to 66 pct in 1986
from 76 pct a year ago due to competition from falling oil
prices, he added. But this year, gas was expected to recapture
only two pct of the share, Makovich said.
    Michael German of AGA agreed and said, "Nevertheless,
outlet for several hundred billion cubic feet of gas a year is
significant in a glutted market."
 Reuter
