American Gas Association (A.G.A.) presentation at New York Society of Security Analysts.

NEW YORK--(BUSINESS WIRE)--Jan. 17, 1996--The following is a summary of a presentation today Wednesday at the New York Society of Security Analysts by Michael Baly, President and CEO of A.G.A.

Unregulated wellhead prices for natural gas are proving to be both an efficient and effective way to balance the supply and demand needs of natural gas customers, American Gas Association President and CEO Michael Baly said today.

"The recent cold weather in the Midwest and East Coast has had an effect on storage and on the cash and futures prices of natural gas," Baly told the New York Society of Security Analysts.

"One of the results of the price rise in the East is that fuel-switching is occurring among large-volume customers, where residual oil is now cheaper than gas. As large-volume customers switch from gas, that gas will be available to others, putting downward pressure on gas prices."

Baly also noted that, while some interruptable gas customers are being interrupted, there is no evidence that firm sales or transportation customers have experienced any service curtailments.

"While storage is about 17 percent below where it was at this time last year, we also had too much gas still in storage last year at the end of the heating season. This year, is appears that the inventory is being used as it should be -- as part of the overall supply mix to serve core customers," Baly said.

"Storage was never designed to serve the needs of all customers -- it was designed to meet the peak-service needs for core customers. In fact, given that the coldest days of winter may still be ahead, gas companies must preserve the ability to serve those customers. That's why many companies have gone into the cash market for short-term rather than draw down storage, and that in turn has put upward pressure on prices."

Baly said that if the cold weather continues, the cost of gas to core customers per unit of consumption probably would rise this year, as the actual cost of gas to the utility rises.

"But as futures, cash and storage numbers move, the bottom line on supply still is that there is plenty of gas to meet customer requirements now and for the remainder of the winter heating season," Baly said. "In general, in fact, the supply picture is excellent. For example, recent data show that reserve additions in 1994 were about 108 percent of the year's production.

"In 1994, for the third straight year, domestic gas production increased, and in 1995 also for the third straight year, gas well completions are expected to exceed oil well completions -- about 7,300 gas wells compared with about 7,000 oil wells."

Also contributing to a positive supply outlook was natural gas from Canada, which grew again in 1995, Baly said, to about 2.8 quadrillion Btu (quads) from 2.5 quads in 1994.

Baly projected that natural gas use will continue to increase in 1996, reaching an estimated 23.3 quads. "On a percentage basis in 1995, natural gas use increased at a rate more than three times greater than the growth of overall energy use.

"If this trend continues and our projected level of consumption occurs in 1996, it will represent the highest amount of gas ever used in this country in a calendar year," Baly said, "and would continue a nine-year upward swing that has seen gas consumption rise 32 percent since the low point in 1986."

CONTACT: American Gas Association

Julie Stewart, 703/841-8667