Future Prospects of End-Use Gas Markets
Authors: Crist J. L. 
Published: December 2007

The depressed conditions of the natural gas market represent a much different environment than existed in the business just half a dozen years ago. These days, it might appear to be a buyer's market, and indeed for those producers who are still trying to sell gas in traditional means, it is a buyer's market. To help plan future production and profitably sell existing production, a producer will need to better understand the end-use gas market. There is a big difference between selling a commodity to a local distribution company or to a gas pipeline and selling end-use gas to a commercial or industrial customer for a specific process application.

There are many new applications which represent nontraditional sources of market growth in the end-use business. Natural gas is starting to make some headway in the electric utility generation market in co-firing applications. This enables the electric utility to obtain additional electricity from an existing generating unit at minimal capital expense. This technology will become more important in the future as environmental regulations are tightened and new capacity is needed.

Other sources of load growth are cogeneration and air-conditioning. Both markets are currently becoming economically attractive because of the rise of electric prices in this region. Another new market application that will grow over the next decade is waste disposal as landfills become harder to develop and concerns for hazardous waste disposal increase.

When selling gas into these new market applications, competition comes from a variety of sources, and they are not viewed as traditional competitors. Traditional competitors normally are other gas producers, either in the Appalachian region or in the southwest region of the country who in turn sell to pipelines that come into this region. In the new markets, gas producers will be competing with other energy providers by pitting the energy advantages of natural gas against electricity, oil, or coal. Indeed, another form of a competitor in the end-use market is money. Most end-use applications will require the investment of large sums of money. If money is not available for energy projects, then these new uses for natural gas will not develop.

There are several actions that can be taken. We clearly must improve our lobbying effort. Our competitors in the energy business--the electric utilities and the coal producers--are much better organized and more effective at lobbying at the state level. We must have our legislature, the Governor's Energy Council, and the Public Utility Commission realize that the health of the natural gas industry is important to the states in this region. Natural gas should not be getting second-class treatment when it comes to government allocations of funds and policy setting.

To improve our own abilities to better market the end-use customers, we must get a much clearer understanding of how our product is used by the customer. That means understanding the new technologies available and assisting our customers in implementation of such projects. That means designing our gas sales terms and costs with the customers' needs in mind. Many of these new projects require the substantial capital investment on someone's behalf. If a customer is going to take such a long-term risk, he needs to have a long-term supply contract in hand which assures him that prices will not skyrocket out of sight once he makes his million-dollar investment. With such careful attention to the customer and to the business environment in the region, new uses of natural gas can be developed and those sales can be realized by our regional producers. The market outlook is bright, but the future market is different from the market we have seen in the past. No longer will we see steady market growth and orders that flow into us. The new market must be aggressively developed with sales occurring only after our product--the gas, the price, and the terms--are designed to meet the customers' needs.