ENRON CHAIRMAN SEES LONGER TERMS FOR GAS CONTRACTS

ENRON CHAIRMAN SEES LONGER TERMS FOR GAS CONTRACTS

Natural gas suppliers soon may be offering fixed-price term contracts to electrical utilities that are longer than today's 15-year maximum, said Kenneth Lay, chairman and chief executive of Enron Corp.

"I think (fixed-price contracts) will gradually extend over time," he told The Journal of Commerce during the Natural Gas for Electric Power Generation conference here Monday.Enron, he indicated, will be among the companies to lead the way toward longer contracts, if market demand warrants.

"But right now, a 15-year" contract meets most customer demands for long- term price stability, Mr. Lay said.

A long-term, fixed contract is based on a set gas price with an ''escalator" that increases the cost of the fuel over time, Mr. Lay explained.

Other long-term contracts now being offered may start with a fixed price schedule but switch to an index in later years. That index may be based on market quotes for gas or oil prices, Mr. Lay said.

"We are one of the few companies" offering long-term fixed gas prices, Mr. Lay said in remarks to the conference, urging others in the industry to follow suit.

By offering long-term, fixed-price contracts, the gas industry can claim a larger piece of the electrical generation market in the United States, Mr. Lay said.

Natural gas used to generate electricity in the United States is projected to grow to between 4.8 trillion and 5.7 trillion cubic feet a year by 2005

from about 2.9 trillion currently, according to Energy Information Administration projections, making the utility sector the fastest-growing market for gas.

Gas currently accounts for about 12 percent of U.S. power generation, EIA figures show. That could increase to 16 percent by 2010, as gas generation supplants nuclear generation as the second largest contributor after coal, the EIA said in its Annual Outlook for U.S. Electrical Power, 1991.

David Nevius, vice president of the North American Electric Reliability Council, said he sees gas returning to a 20 percent share of the electrical generation market - the level it had in the 1970s, before federal regulators restricted natural gas use in utility markets.

But there is still some concern over the gas industry's ability to supply adequate amounts of fuel via a pipeline system, especially during peak demand times, Mr. Nevius said.

Showing a chart of electrical demand over a given day, Mr. Nevius said gas use by utilities could skyrocket to eight times the base load during times of extreme peak demand.

To handle what he called the "technical issues" of delivering gas to electrical power plants, Mr. Nevius called for greater cooperation and understanding between the gas industry and utilities.

Operations specialists from both electricity and gas companies should meet to "understand better" just how the other industry works, he said.

With an eye on capturing new electrical power generation, the natural gas industry again is touting what it sees as economic and environmental advantages.

Even using gas prices that are higher than Enron's current long-term projections, Mr. Lay said a new gas-fired power plant would cost about one- third less to build and operate than a new coal plant over time.

Natural gas plants, he added, produce no sulfur dioxide emissions, and can reap significant reductions in carbon dioxide and nitrogen dioxide, compared with a new coal plant.