A Brief History of Natural Gas

Natural Gas in History

Although naturally occurring gas has been known since ancient times, its commercial use is relatively recent. In about 1000, B.C., the famous Oracle at Delphi, on Mount Parnassus in ancient Greece, was built where natural gas seeped from the ground in a flame. Around 500 B.C., the Chinese started using crude bamboo “pipelines” to transport gas that seeped to the surface and to use it to boil sea water to get drinkable water.

The first commercialized natural gas occurred in Britain. Around 1785, the British used natural gas produced from coal to light houses and streets. In 1816, Baltimore, Maryland used this type of manufactured natural gas to become the first city in the United States to light its streets with gas.

Naturally occurring natural gas was discovered and identified in America as early as 1626, when French explorers discovered natives igniting gases that were seeping into and around Lake Erie. In 1821, William Hart dug the first successful natural gas well in the U.S. in Fredonia, New York. Eventually, the Fredonia Gas Light Company was formed, becoming the first American natural gas distribution company.

In 1836, the City of Philadelphia created the first municipally owned natural gas distribution company. Today, U.S. public gas systems number more than 900, and the Philadelphia Gas Works is the largest and longest operating public gas system in the U.S.

During most of the 19th century, natural gas was used almost exclusively as a source of light, but in 1885, Robert Bunsen's invention of what is now known as the Bunsen burner opened vast new opportunities to use natural gas. Once effective pipelines began to be built in the 20th century, the use of natural gas expanded to home heating and cooking, appliances such as water heaters and oven ranges, manufacturing and processing plants, and boilers to generate electricity.

Natural Gas Today

Today, natural gas is a vital component of the world's supply of energy. Natural gas currently supplies more than one-half of the energy consumed by residential and commercial customers, and about 41 percent of the energy used by U.S. industry. It is one of the cleanest, safest, and most useful of all energy sources.

Ninety-nine percent of the natural gas used in the United States comes from North America. Because natural gas is the cleanest burning fossil fuel, it is playing an increasing role in helping to attain national goals of a cleaner environment, energy security and a more competitive economy. The two million-mile underground natural gas delivery system has an outstanding safety record.

As this 2004 edition of the APGA History Highlights goes to print, liquefied natural gas (LNG) is beginning to play a more prominent role in the overall gas supply picture. Although about one percent of the natural gas consumed in this country is currently imported as LNG, it is estimated that our nation's imports of LNG will grow to approximately 7 or 8% by the end of this decade. This will require more than the four LNG facilities that currently exist.

Regulation

Natural gas distribution companies have always been subject to regulation by state and local governments. In 1938, however, with the growing importance of natural gas, concern over the heavy concentration of the natural gas industry, and the monopolistic tendencies of interstate pipelines to charge higher than competitive prices due to their market power, the U.S. government began regulating the interstate natural gas industry with passage of the Natural Gas Act. The Act was intended to protect consumers from possible abuses such as unreasonably high prices. The Act gave the Federal Power Commission (FPC) jurisdiction to regulate the transportation and sale of natural gas in interstate commerce. The FPC was charged with regulating the rates that were charged for interstate natural gas delivery and with certifying new interstate pipeline construction if it was consistent with the public convenience and necessity.

The Department of Energy Organization Act of 1977 transferred to the five-member Federal Energy Regulatory Commission (FERC) most of the former FPC’s interstate regulatory functions over the electric power and natural gas industries, including setting the rates and charges for the transportation and sale for resale of natural gas in interstate commerce. The Act also transferred to the FERC from the Interstate Commerce Commission the authority to set oil pipeline transportation rates and to set the value of oil pipelines for ratemaking purposes.

In the 1980s, a movement toward deregulation of the natural gas industry began. In 1985, FERC issued Order No. 436, which barred pipelines from discriminating against transportation requests based on protecting their own merchant services, thus at least in theory providing all customers the same right to pipeline transportation that industrial fuel-switching customers had enjoyed since the early 1980s. The movement toward allowing pipeline customers the choice in the purchase of their natural gas and their transportation arrangements became known as ‘open access.’ FERC Order No. 636, issued in 1992, completed the process of unbundling gas supply from gas delivery by making pipeline unbundling a requirement. It provided for the complete unbundling of transportation, storage, and sales; the customer (the local gas distribution system) now chooses its gas supplier and (if it has options) the pipeline(s) to transport its gas.

In 1989, Congress completed the process of deregulating the price of natural gas at the wellhead, which was begun in 1978 with the passage of the Natural Gas Policy Act, by passing the Natural Gas Wellhead Decontrol Act (NGWDA). The NGWDA repealed all remaining regulated prices on wellhead sales. In the current federal regulatory environment, only interstate pipelines are directly regulated as to the transportation of gas in interstate commerce. Investor-owned local distribution companies (LDCs) are typically regulated by state public service commissions regarding the services they provide. Natural gas producers and marketers are not directly regulated by the federal government as to rates and related matters. Interstate pipeline companies are regulated regarding the rates they charge, the access they offer to their pipeline facilities, and the siting and construction of new pipelines. Similarly, local distribution companies (excluding most municipally owned public gas systems) are regulated by state public service commissions, which oversee their rates and construction issues, and ensure that proper procedures exist for maintaining adequate supply to their customers.

In the late 1990s and early years of the twenty first century, APGA has been largely concerned with attempting to ensure that the tariff rates for pipeline services are set at just and reasonable levels and that pipelines do not discriminate with respect to the terms under which they provide such services. APGA has also been at the forefront of those seeking price transparency in the marketplace as a means of fostering more stable prices for natural gas. In addition, APGA has been seeking to promote the efficient and judicious use of natural gas to reduce the extent to which demand for the product outruns the available supply and drives prices to even more exorbitant levels.

 

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