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WHILE BILLS MAKE US SHIVER, GAS IS KEPT JUST IN CASE

By Jeff Long Tribune Environment Writer January 28, 2001

About 75 billion cubic feet of natural gas lies in a layer of porous sandstone some 1,500 feet beneath a bean field near Troy Grove, Ill., forming a miniature version of the sort of reserve that producers hope to tap when they sink their wells.

But unlike naturally occurring reserves, this one is manmade: Nicor Gas pumped the valuable heating fuel into the ground before winter began.

Troy Grove, population 300, sits in the middle of glacier-flattened emptiness, about 80 miles west of Chicago. The farmer's field is covered with snow now, inactive for winter.

The reserves beneath that snowy field have become a key part of the debate about soaring gas prices this winter. Critics say that the utilities should tap into those reserves more aggressively to bring down heating bills. But the utilities say pumping out too much of the gas would be irresponsible--that reserves are primarily there to assure that there is enough gas to heat homes if the winter turns bitterly cold.

Which side is right? The answer is as complex as the continent-straddling infrastructure that brings the gas to your home.

The gas that fires your furnace has been carried by pipeline from where it was originally drilled--in Texas, or maybe Louisiana and surrounding states. A pipeline from Canada also feeds the Midwest's voracious appetite for natural gas.

Local utilities divert that piped gas into their own systems to send to their customers. In the summer, utilities pump some of the gas underground for use during winter.

Nicor Gas has seven underground storage fields in northern Illinois. In all, the utility can pump up to 140 billion cubic feet of gas underground for winter use. (There is about 282 billion cubic feet of "base" gas to maintain pressure, which can't be used by customers, in all seven fields.)

Geology keeps the gas in place. A sheet of shale covers the sandstone, and water displaced by the gas fences in the fuel from below.

Of the 75 billion cubic feet of gas in the Troy Grove reserve, about 43 billion cubic feet can be used to heat the homes and businesses of Nicor customers. If it's bitterly cold and supplies from other sources are strained, more than a billion cubic feet of the gas can be withdrawn per day.

Systemwide, Nicor can withdraw about 2.5 billion cubic feet per day, according to storage manager Joe Deters.

The 140 billion cubic feet of stored gas isn't enough to get Nicor's nearly 2 million customers through the whole winter. Last winter, for example, Nicor delivered about 264.4 billion cubic feet of gas. The balance must be bought on the market, either at prices fixed a month in advance or at daily prices that can fluctuate wildly.

Utilities stress that storage is meant to meet the state's requirement that no matter how cold it gets, plenty of gas will be available to heat the homes of Illinois residents and to run the machinery that drives industry.

"As it gets colder, we rely on stored gas," said Karyn Pettigrew, a spokeswoman for Peoples Energy. "On the coldest day, if we can't get enough gas, we call on our own supply."

"We pay a high price for reliability," said Theodore Lenart, assistant vice president for supply ventures at Nicor Gas.

But critics say bad planning by utilities is partly to blame for this winter's brutal rates. "They're using their storage gas very little or not at all," charged Martin Cohen, executive director of the Citizens Utility Board. "We need to be sure that they don't end the winter with any of that cheap gas in storage."

To answer the criticism, Nicor released some statistics on how it has been using its stored gas.

About 47 percent of the gas Nicor delivered in November came from storage, according to figures the company gave the Tribune. In December, which was much colder than November, the proportion of stored gas that Nicor delivered rose with demand. About 56 percent came from storage.

Those amounts are typical of Nicor's usage during winter, officials said.

"Storage has the same utilization regardless of the price environment," said Nicor spokesman Craig Whyte.

Peoples Energy would not say how much stored gas has been used this winter by its two utilities, Peoples Gas in Chicago and North Shore Gas in the northern suburbs. The company said revealing that information would harm its bargaining position with suppliers the rest of the winter.

Nicor said that if it hadn't stored any gas for the winter and used other means to "hedge" on prices, the rate it passes on to consumers would have been even higher.

Nicor figures that it beat the index price of natural gas by $24 million in 2000. Under a program that went into effect last year, Nicor splits that savings with its customers.

Utilities say that lower prices are a fringe benefit of storage. And the idea of "cheap" summer gas isn't as true as before, they add.

Nationwide, the demand for natural gas has increased in the summer. Industry used more as the economy boomed. New gas-fired electric power plants began gulping gas too. Summer prices increased with demand. Wholesale prices were about double this summer over the summer before.

Since prices are hitting customers so hard this winter, local and state officials are demanding answers. The Illinois Commerce Commission, which regulates utilities, is holding hearings. When the commission does its yearly review of whether utilities made "prudent" decisions purchasing gas, the Citizens Utility Board may challenge those decisions.

Utilities say they're at the mercy of producers, suppliers and a volatile market.

The last two winters have been mild, making the price of natural gas relatively low, utilities say. With low demand and no big financial incentive to drill, producers did little to locate new gas fields.

Although it won't say how much it's used so far, Peoples Gas can store about 50 billion cubic feet of gas at a storage field it owns in central Illinois and in leased fields. North Shore Gas can store about 9.8 billion cubic feet in leased fields. By Nov. 1, the storage capacity for both utilities was about 94 percent full, the company said. Peoples Energy keeps some room open in case it has to divert gas it didn't expect to divert into storage.

Nicor had filled its storage to its full 140 billion cubic feet capacity by Nov. 1. Most of that gas goes to customers that the utility buys gas for.

Peoples Energy delivers about 170 billion cubic feet per year to customers that its two utilities buy gas for and transports another 110 billion cubic feet to customers that buy gas elsewhere, according to a presentation the company made to the commerce commission in August.

In November, Nicor delivered about 27.5 billion cubic feet of gas.

The breakdown:

- Storage accounted for about 13 billion cubic feet--or 47.27 percent of the total.

- Fixed-price contracts accounted for about 9.43 billion cubic feet--or 34.27 percent of the total.

- Spot market purchases accounted for about 5.08 billion cubic feet--or 18.45 percent of the total.

- In December, the weather was much colder. Nicor delivered about 51.5 billion cubic feet of gas:

- 29 billion cubic feet came from storage--56.31 percent of the total.

- 14.63 billion cubic feet were bought on fixed-price contracts--28.4 percent.

- 7.88 billion cubic feet were bought on the spot market--15.29 percent.

On Jan. 1, Nicor had about 98 billion cubic feet of gas remaining in storage--some 70 percent of what it started the winter with. That's plenty to ensure gas will flow through winter, said Whyte, the Nicor spokesman.

"We cannot afford to take risks with our gas in storage," he said.

"Nobody's asking them to be perfect forecasters," countered the Citizens Utility Board's Cohen. "But they should not ignore the prices their customers are being forced to pay."

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-- Martin Thompson (mthom1927@aol.com), January 28, 2001