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What else should I know about natural gas?

Like millions of other natural gas customers, you may already know that natural gas is the cleanest, most efficient, most popular home heating fuel. Did you also know that it is a key energy source for millions of American businesses and vital to our nation’s economy?

Read on to learn more about natural gas, its price and supply outlook.


Domestic. Abundant. Efficient.
	A total of 84 percent of the natural gas consumed in the USA is produced in the USA. Natural gas accounts for approximately 25 percent of the energy used in the United States. America’s natural gas resources are plentiful – enough to meet customer needs for generations to come and reduce our dependency on less stable, foreign energy sources. 90 percent of natural gas produced is delivered to customers as usable energy. Compare that to less than 30 percent for electricity generated from coal.
	Your Energy Dollar When it comes to your energy dollar, we want what you want – adequate supplies of natural gas at affordable prices. That is why we work hard to provide our customers with real energy value for their energy dollar: best-in-class customer service, efficient operations and continuous business improvement. To help you better understand where your energy dollar goes, we've provided the chart below. What is the outlook for customers’ heating bills this winter? Winter heating bills are primarily a function of weather (how cold or how warm it is during a billing period) and the wholesale cost of natural gas. That’s because weather is what drives a customer’s monthly consumption up or down and because the wholesale cost of natural gas is such a large portion of a customer’s monthly bill (typically 70% to 75%). Wholesale costs are what Piedmont pays for the natural gas it delivers to customers. These costs are passed on dollar for dollar with no added markup. The rest of the bill covers the cost of distributing the gas to customers, the rate for which is regulated by the utility commission in each of the states in which Piedmont operates. Wholesale costs of natural gas have been quite volatile in recent years. Heading into the 2006/07 winter heating period (November – March), Piedmont expects wholesale prices to be in line with where they were last winter, perhaps lower if recent declines are sustained in the marketplace. Remember, however, that last winter overall was approximately 10% warmer than normal. So, even if wholesale prices remain level with or even slightly lower than last year’s prices, customers should anticipate similar monthly heating bills to last year if temperatures are normal or colder than they were last year. This is because they will likely be consuming more natural gas this year over last year if the weather is colder. Why have wholesale natural gas prices been so volatile in recent years? Wholesale natural gas prices have been and most likely will continue to remain volatile as a result of the extremely tight balance between natural gas supply and demand. Because of this, even minor swings in the demand for or the supply of natural gas can have a significant effect – up or down - on wholesale prices. It goes without saying, then, that the occurrence of a major weather event like Hurricanes Katrina and Rita in 2005 which significantly disrupted the production and gathering of natural gas in the Gulf of Mexico, or extreme summer or winter weather can have a dramatic, adverse impact on the balance between supply and demand, sharply increasing wholesale prices. What is causing the tight balance between natural gas supply and demand? The demand for natural gas continues to grow faster than the natural gas exploration and drilling industry can increase the available domestic supply. Clean, comfortable, convenient and efficient natural gas remains the choice of more than 68 million American households and businesses and is the preferred energy choice for electric power generation plants across the country. As a result, demand for natural gas is expected to increase by up to 20 percent over the next 20 years. Existing natural gas supply fields, however, are maturing, their production rates leveling off or even declining. Coupled with the federal moratorium on accessing new domestic supplies of natural gas on the Outer Continental Shelf (OCS), upward pressure on natural gas prices will continue until such new sources of supply are developed and brought to market What is Piedmont doing to help keep the cost of natural gas down for its customers? While Piedmont does not have control over the wholesale cost of natural gas, it does employ several strategies to help bring natural gas to its customers at the lowest competitive price. First, we buy natural gas supplies in the summertime when prices are typically lower, and store it either as liquefied natural gas (LNG) or in underground storage fields for delivery to customers during the winter. We also use financial tools to help insulate our customers from extreme swings in natural gas prices. Using a technique called hedging, we purchase futures contracts for a portion of our supply portfolio that give us the right to buy or sell natural gas at a certain time and at a fixed price in the future. In addition, Piedmont works hard to maintain diversity in its supply portfolio by seeking out favorable opportunities to access production areas in new geographical locations. This helps to reduce risks associated with having supplies come from a single geographical region. Piedmont also maintains diversity by utilizing numerous suppliers under a variety of contract terms and conditions in order to provide adequate supplies of natural gas to its customers at competitive prices. What is the outlook for natural gas supply? The U.S. is fortunate to have an abundant, domestic supply of natural gas sufficient to meet the demands of more than 68 million residential, commercial and industrial users. The pressing issue, however, is that the growing demand for clean-burning natural gas is outpacing the ability of currently accessible supply fields to meet that demand. As that happens, the already tight balance between supply and demand will swing further out of balance and, unless new sources of supply are brought to market, result in significant upward price pressure. While we as consumers can moderate demand to some extent through energy efficiency and conservation, it is not enough in and of itself. With demand expected to grow by as much as 20 percent over the next 20 years, it is imperative that new sources of natural gas supply be made accessible to exploration and drilling activity. New domestic sources, such as the Outer Continental Shelf (OCS), have abundant potential natural gas resources. They are, however, currently off-limits to exploration and drilling as a result of federal regulation and policy. Other supplemental sources of supply that must be developed if we are to meet the growing demand for natural gas include liquefied natural gas (LNG) and natural gas from Alaska and the Rockies. Why is demand for natural gas growing so fast? Residential and commercial usage is growing at a somewhat stable rate, and conservation can play a role in ensuring that energy is used wisely. Even so, our country’s population is growing and demand will grow with it. The other key factor in demand growth is the amount of natural gas being used to generate electricity. Electric utilities have switched to natural gas-fired generators in a big way in recent years in large part because clean-burning natural gas makes it so much easier for utilities to comply with emissions standards and limits. Piedmont Natural Gas believes that one solution to the supply/demand imbalance is to promote a more diverse fuel mix for power generation facilities including clean coal technology, coal gasification and nuclear energy, thereby reducing demand pressures on the wholesale price of natural gas. How much natural gas is currently off limits to exploration and production? One area that holds so much potential is the Outer Continental Shelf. In fact, the federal government itself estimates that 22 years worth of natural gas may be recoverable from the OCS alone where drilling is not currently allowed. In addition, the Rockies and Alaska hold vast deposits that we have not yet begun to utilize. And, with technology improvements in exploration and drilling, no one need fear that harm will come to coastal-based tourism or to fishing and related industries. On the contrary, we have the ability to assure an adequate, secure supply of one of the most clean-burning and environmentally friendly fuels available on the planet today – natural gas. Why is there opposition to opening these new areas to natural gas production? We believe many of the arguments against natural gas production in these areas are based on outdated premises. In terms of environmental protection, last year’s hurricanes showed without a doubt that natural gas can be produced safely in an environment such as the OCS. Although the storms did have a significant impact on natural gas production in the Gulf of Mexico because of damage to physical infrastructure (drilling platforms, on-shore processing plants), there were no significant reports of oil or natural gas leaks from any production facilities. Even if a natural gas production facility were to “leak”, natural gas is lighter than air and would escape into the atmosphere, rather than wash up on shore. What about imported natural gas? Couldn’t the United States avoid this environmental debate by simply importing enough additional natural gas to meet our nation’s needs Imported liquefied natural gas (LNG) is certainly part of the solution, but we need access to all available supplies. The lesson that the Gulf hurricanes underscored last year was that, as a nation, we need a more diversified supply portfolio to ensure stable prices and insulation from localized disruptions. What is Piedmont Natural Gas doing to resolve these supply issues? Although our company and the natural gas industry promote energy conservation and our customers are listening and taking action, conservation by itself isn’t enough. We need to open up new sources of domestic natural gas supply to meet the growth in demand. There are currently two bills – one in the Senate and one in the House of Representatives – that would allow additional exploration and drilling for natural gas on the OCS. The House bill would open up a much larger area than would the Senate bill. In both cases, exploration and drilling activity would take place beyond eyesight from any shoreline. It is time to let our elected federal officials know that we need adequate supplies of natural gas at affordable prices and that it is not in our economic interests, not in our energy security interests and not in our national security interests to keep these domestic sources of natural gas supply off the market.

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