Natural gas sector suffers growth pains

Infrastructure, weather woes bedevil industry

HOUSTON — America’s plan to use more natural gas to run power plants, make chemicals, drive vehicles, and heat homes may not go as smoothly as expected.

There’s plenty of natural gas in the ground. But the harsh winter showed there are obstacles to producing it, and more pipelines have to be built.

Bitter cold boosted demand for natural gas to heat homes and businesses. But wells in some places froze. And high demand clogged pipelines, so even when there was enough production, the gas couldn’t get to its destination.


Shortages cropped up, and prices in some places soared to record levels. Californians and Texans were asked to reduce power consumption because utilities were running low on gas to run power plants. Montana State University in Billings had to cancel classes for a day because of a natural gas shortage.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

‘‘We struggled to get the supply there as quickly as we needed,’’ Colin Parfitt, who runs Chevron’s global trading operations, said last week. ‘‘It’s a reminder there will be volatility in our market.’’

The problems came as a shock because the gas market was thought to have escaped the volatility of the past. Drillers have discovered enormous reserves, production is at record levels, and prices had been relatively steady.

Based on that, the nation has geared up to use more natural gas. Utilities are switching away from coal and nuclear power, chemical companies that use natural gas as a feedstock have reopened old plants and are planning new ones, export facilities are being built, and trucks and locomotives are beginning a switch to natural gas.

Anthony Yuen, a natural gas analyst at Citi, predicts demand will ‘‘mushroom’’ starting next year and grow 33 percent by 2020 from last year’s 73 billion cubic feet a day.


Now there is concern about whether the industry can produce all of the gas needed and deliver it through an inadequate pipeline system.

‘‘They can,’’ said Bob MacKnight, a director at the research firm IHS. ‘‘The key question is, ‘Will they?’ ’’

Drillers have suffered significant losses in recent years because of persistently low prices. In 2012, natural gas fell below $2 for the first time in a decade. This year, the natural gas futures price has averaged $4.82 per 1,000 cubic feet — 20 percent higher than last year’s average and 70 percent higher than in 2012.

Retail prices are still far below where they were in the early and middle 2000s. But the average residential price is expected to rise 12 percent this year to $11.56 per 1,000 cubic feet, according to the Energy Department. It would be the first increase in residential prices since 2008.

But drilling companies aren’t convinced that higher natural gas prices will last.


The industry also has to build pipelines.

‘‘It’s a question of getting to market,’’ said Greg Ebel, chief executive of Spectra Energy, a pipeline company. ‘‘How are we going to actually deliver the supply needed? That’s a real challenge for us.’’