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Executive Summary: to be written




Convergence: Natural Gas and
Electricity in Washington

A Survey of the Pacific Northwest Natural Gas Industry
on the Eve of a New Era in Electric Generation







Martha Choe
Director



David Warren, P.E.
Assistant Director for Energy Policy

May 2001

















Convergence: Natural Gas and
Electricity in Washington

A Survey of the Pacific Northwest Natural Gas Industry
on the Eve of a New Era in Electric Generation








Energy Policy Division
925 Plum Street SE, Bldg 4
PO Box 43173
Olympia, WA 98504-3173


May 2001





Printed copies of this report are available by calling (360) 956-2096


This document is also available on the Internet at http://www.cted.wa.gov

Printed on recycled paper


Editor
Arne Olson, Washington Office of Trade and Economic Development


Contributing Authors
Roel Hammerschlag, Institute for Lifecycle Energy Analysis
Rick Kunkle, P.E., Washington State University Cooperative Extension Energy Program
Jim Lazar, Microdesign Northwest
Arne Olson, Washington State Office of Trade and Economic Development
David Warren, P.E., Washington State Office of Trade and Economic Development
Stacey Waterman-Hoey, Washington State University Cooperative Extension Energy Program


Acknowledgements
The Washington State Office of Trade and Economic Development would like to recognize the
following organizations for their generous donations of staff time and resources in review of earlier
drafts of this report:
Energy and Environmental Analysis, Inc.
Northwest Gas Association
Northwest Industrial Gas Users
NW Natural
Northwest Power Planning Council
Washington Utilities and Transportation Commission
PG&E National Energy Group
Puget Sound Energy, Inc.
Williams Gas Pipeline

This recognition does not imply endorsement of any of the findings or conclusions of the report.




Natural Gas and Power in Washington



i







Natural Gas and Power in Washington

Table of Contents

Executive Summary ...............................................................................................................................1
Section 1.
Past and Present Trends in the Natural Gas Industry.....................................................7
Pre-1985: The Natural Gas Industry Under Federal Regulation ......................................................9
Natural Gas Industry Restructuring, 1985-1999................................................................................9
Post-1985: Growing Demand for Natural Gas in the Northwest....................................................11
The Next Phase: Natural Gas for Power .........................................................................................12
Implications......................................................................................................................................16
Section 2.
The Events of 2000 and Early 2001.............................................................................18
Years of Plenty, 1992-1999 .............................................................................................................18
The Beginnings of a Crisis...............................................................................................................19
Market Meltdown.............................................................................................................................24
Implications......................................................................................................................................28
Section 3.
Natural Gas Pipelines Serving the Pacific Northwest..................................................30
The Evolution of Federal Pipeline Policy........................................................................................30
Northwest Pipeline...........................................................................................................................31
PG&E Gas Transmission Northwest (GTN) Pipeline .....................................................................35
Natural Gas Storage .........................................................................................................................37
Pipeline Expansion...........................................................................................................................38
Implications......................................................................................................................................43
Section 4.
Natural Gas Production................................................................................................44
Traditional Gas Supplies..................................................................................................................44
Potential New Sources of Natural Gas.............................................................................................49
Implications......................................................................................................................................52
Section 5.
Conclusions and Recommendations for Further Study ...............................................53







List of Figures

Figure 1.1. Major Natural Gas Pipelines Serving the Northwest......................................................... 7
Figure 1.2. Natural Gas Utility Service Areas in Washington............................................................. 8
Figure 1.3. Residential Natural Gas Prices in Washington vs. U.S. Average.................................... 10
Figure 1.4. Pacific Northwest Natural Gas Consumption by End-Use Sector .................................. 11
Figure 1.5. Existing and Proposed Natural Gas-Fired Power Plants in Washington......................... 13
Figure 1.6. Past and Potential Natural Gas Consumption in the Pacific Northwest .......................... 15
Figure 2.1. Northwest Gas Generator Spark Spreads, 1/00 2/01 (Sumas and Mid-Columbia
trading hubs)..................................................................................................................... 20
Figure 2.2. Wholesale Natural Gas Prices, 6/99 2/01 ..................................................................... 22
Figure 2.3. 1999-2000 Natural Gas Consumption for Electricity Generation, WSCC Region ......... 23
Figure 2.4. Weekly Natural Gas Prices at Western Locations........................................................... 26
Figure 4.1. Gas Wells Drilled in Canada, 1995-2000........................................................................ 47
Figure 4.2. Average Gas Pool Size in the Western Canadian Sedimentary Basin............................. 47
Figure 4.3. U.S. Natural Gas Drilling Activity .................................................................................. 48


List of Tables

Table 1.1. Existing and Proposed Natural Gas Power Plants in Washington, Oregon and Idaho ..... 14
Table 1.2. Proposed Natural Gas-Fired Generating Capacity, WSCC Region (Megawatts)............. 16
Table 2.1. Average Monthly Household Natural Gas Bill for Washington Utilities......................... 22
Table 2.2. Natural Gas Consumed for Electricity Generation, WSCC Region ................................. 24
Table 2.3. Electricity Generation by Major Fuel Type, WSCC Region ............................................ 24
Table 3.1. Contracted Capacity Receipts for the Northwest Portion of the Northwest Pipeline ....... 32
Table 3.2. Largest Shippers on Northwest Pipeline System .............................................................. 33
Table 3.3. Largest Shippers on the PG&E Gas Transmission Northwest Pipeline............................ 36
Table 3.4. Natural Gas Storage Facilities Available to the Pacific Northwest .................................. 38
Table 3.5. Northwest Pipeline/Williams Expansion Plans................................................................. 39
Table 3.6. GTN Pipeline Expansion Plans......................................................................................... 41
Table 4.1. North American Natural Gas Reserves............................................................................. 45
Table 4.2. Estimated Coal Bed Methane, Total U.S. Undiscovered Reserves .................................. 49

Natural Gas and Power in Washington




ii Executive Summary
This report examines trends in the demand for and supply of natural gas for Washington and the
Pacific Northwest in light of current plans to construct several thousand megawatts of new natural
gas-fired electric generating capacity. Construction of even a fraction of the projects that have been
proposed for Washington, Oregon, and Idaho will greatly increase the regions demand for natural
gas. This raises serious questions about the ability of the r