National Fuel Gas Company Business Information, Profile, and History

History of National Fuel Gas Company

The National Fuel Gas Company is an integrated public utility holding company whose operating companies explore, produce, store, and distribute natural gas, build natural gas delivery pipelines, and operate saw mills and dry kilns. The company has 714,700 customers in its primary service areas of western New York State and northwestern Pennsylvania, where it operates a regulated public utility company. It also supplies gas to 20 utility companies located along the Atlantic seaboard of the United States. Its exploration and production activities are located in the Appalachian region, the Gulf Coast, California, and Alberta, Canada.

A predecessor of the National Fuel Gas Company, the Iroquois Gas Corporation, was the first company organized in the United States to provide the service of delivering natural gas. In 1821 the Village of Fredonia, in far western New York state, tapped an accumulation of inflammable gas that was known to bubble up from the bed of the Canadaway Creek. The citizens of Fredonia opened a hole on the bank of the creek and collected the gas in a gasometer. They then laid lead pipe through the streets, allowing the gas, forced by its own natural pressure, to flow freely into a total of 100 street lamps throughout the village. Fredonia, New York, continues to be one of the cities served by National Fuel Gas Company.

After the Fredonia project proved successful, a separate contractor built a lighthouse in Barcelona, New York, on the shores of Lake Erie. The contractor similarly tapped the reservoir of natural gas that bubbled through the Canadaway Creek, and piped it to the lighthouse. That lighthouse, built in 1830, became the first navigational beacon light in the world to be lit with natural gas. While it operated for many years to guide ships that plied Lake Erie, the lighthouse eventually fell into disuse. However, it was relit for a time again in 1962 as a monument to the merchantmen who sailed the Great Lakes and to the forebears of the National Fuel Gas Company.

At the height of the Civil War, in 1863, oil was discovered in Titusville, Pennsylvania, a village about 50 miles south of Fredonia, setting off a frenzy of oil fever throughout the Appalachian region. A group of investors caught the fever in Bloomfield, New York, 75 miles east of Fredonia, and organized a drilling project. The contractor hired to do the drilling hit gas at 480 feet and had to stop work for several weeks as it blew off. After sinking the well to 500 feet, the contractor was finished, but no oil was found and the project was abandoned. The well was set on fire--gas then was considered an unprofitable and undesirable by-product of the search for oil--and it burned until another group of investors bought it in 1870.

Those investors built a pipeline made of bored pine logs connected with bands of iron and iron joints in an effort to supply Rochester, New York, a growing village some 25 miles to the north, with gas for street and residential lighting. But that project failed within two years because of the many leaks in the wooden pipes and the low pressure in the lines.

Each of these rudimentary ventures, which advanced ideas for the uses of natural gas, was eventually purchased or merged into the company that became the National Fuel Gas Company.

Through the 1870s and 1880s, such ventures developed in increments. Some, like the Bloomfield to Rochester pine-log pipeline, withered in their infancy. But others flourished--such as the two-inch, wrought iron pipeline that was laid in 1872 to carry natural gas from Newton, Pennsylvania, to Titusville and the eight-inch wrought iron pipeline that was laid in 1886 to carry natural gas from McKean County, Pennsylvania, to Buffalo, New York. The latter pipeline, built by the United Natural Gas Company, a direct predecessor of the National Fuel Gas Company, was recognized at its time as the longest (at 87 miles) natural gas pipeline in the world, and portions of it remain today as part of the National Fuel Gas Company distribution system. United Natural Gas Company continued to make innovations through the 1890s; these included the use of internal combustion engines to drive compressors and pump natural gas at constant pressure throughout the distribution area. The company put the world's first 1,000 horsepower gas engine into service in 1899 to drive a compressor.

National Fuel Gas Company was organized as a corporation in 1902 in the State of New Jersey, with operations centered in Buffalo, New York. Through the early 1900s, National Fuel Gas Company acquired smaller gas utility companies in the Buffalo region that were not capitalized as well or whose gas sources were spent. By that time, natural gas had become a proven commodity for heating, cooking, and lighting, and National Fuel Gas Company built three parallel lines from Pennsylvania to Buffalo to match the original eight-inch line built in 1886.

Through its Provincial Gas Company subsidiary, which operated in southern Ontario, Canada, across the Niagara River from Buffalo, and its Iroquois Gas Corporation subsidiary, National Fuel became the first natural gas company to experiment with underground gas storage. Underground gas storage relies on pockets or 'lenses' of porous rock that are surrounded by impervious rock to form reservoirs of gas. Those pockets are the same pools that were drilled for the original supplies of natural gas and from which gas was pumped to deplete them. With proper maintenance and drilling techniques, those pools are just as capable of storing new supplies of gas pumped into them as they were for storing reserves of prehistoric natural gas.

Today, underground gas storage is a common practice that allows utility companies to deliver and store large quantities of gas in spent or low pressure producing fields during periods of low demand so that pressure can be maintained during periods of increased demand. The underground storage of gas is monitored through sophisticated mathematical formulas related to the volume of gas that is injected or withdrawn.

Through the 1930s, the availability of natural gas in the Appalachian region ebbed while the demand for natural gas for industrial and residential uses increased, and the company experienced several shortages in its distribution area. In response to the declining availability of gas in its original producing region, National Fuel joined other gas utility companies in developing newly discovered reserves in the southwestern United States and built pipelines to connect those reserves to its storage facilities and service areas.

Inflation and demand from war industries caused increases in the cost of coal and oil during the Second World War, while the cost of natural gas remained low. With that low price, demand for natural gas as a home heating fuel skyrocketed in the 1940s, helping National Fuel Gas Company to more than double its annual sales over the course of the decade. That explosive growth continued through the 1950s, a decade during which the company shifted its primary source of natural gas from the Appalachian area to the southwestern region of the United States. By 1962 the company reported sales of more than $128 million, to 565,000 customers. More than 80 percent of the company's sales were to residential customers who use the fuel for home heating, water heating, and cooking. Today, residential sales account for 62 percent of sales, and the company enjoys a 95 percent share of the heating market.

The company's penetration of its service area matured during the next two decades and brought echoes of the 1930s as shortages, brought on by the energy crisis, caused the company to restrict new residential hookups. A joint effort by natural gas utility companies to develop new reserves and supplies was assisted by the Natural Gas Policy Act of 1978, and the industry developed an oversupply of natural gas by the mid-1980s which, in turn, led to reduced gas and oil well-head prices, and a difficult period for natural gas companies.

While the industry experienced a restructuring through the 1980s that saw several companies retrenching, National Fuel moved to diversify its business and to double its reserves of natural gas and oil. The company set out in the early 1980s to move away from its traditional retail business, investing more in such areas as the storage, transportation, and production of natural gas. In 1983, the company had gas and oil reserves totalling 99 billion cubic feet, while in 1987 it held gas and oil reserves totalling 199.6 billion cubic feet.

To augment those reserves, National Fuel was one of six utility holding companies that applied to the Federal Energy Regulatory Commission for permission to build a pipeline that would let them import gas from reserves in Alberta, Canada. National Fuel bought Utility Constructors Incorporated of Linesville, Pennsylvania, in 1986, as a part of its move to build that Canadian pipeline, but it lost out in the bidding. Even so, National Fuel has used Utility Constructors to build other pipelines in its service and distribution areas, including a $67 million pipeline that was completed in 1988 and allowed the company to import even more natural gas from Canada than the Alberta project.

National Fuel Gas Company delivered 256.7 billion cubic feet of gas in its fiscal year ending September 30, 1991. Of that amount, 50 percent was retail sales, and the remainder was primarily for commerical and industrial customers. The retail sale of natural gas contributed $694,215,000 in revenues, approximately 58 percent of the company's 1991 operating income from its regulated activities and 58 percent of the company's operating income before taxes. The company has 716,000 retail customers today.

National Fuel operated 14,335 miles of utility pipeline and 3,256 miles of transmission and storage pipeline in 1991. As of that year, the company operated 34 fields that were served by an additional 508 miles of pipeline with the reservoir capacity to store more than 117 billion cubic feet of gas. Four of the company's 34 storage fields were operated jointly with pipeline suppliers. The supply, transmission, and storage of natural gas contributed $497,237,000 in revenues, approximately 42 percent of the company's 1991 operating income from its regulated activities and 34 percent of its pretax revenues.

National Fuel Gas Company's exploration and production operations supplied about 9 percent of the company's pretax operating income. The company drilled or participated in drilling 28 net gas wells in 1991, of which 12 were producers, providing the discovery of approximately 1.6 billion cubic feet of natural gas, while 16 were plugged and abandoned as dry holes. In the previous year, the company drilled 36 wells that produced 3.3 billion cubic feet of gas. The firm reported gas reserves of 176,772 million cubic feet of gas and reserves of 20,316,000 barrels of oil at the end of 1991, and it operated 2,459 gas wells, of which 2,199 were in the Appalachian region, and 625 oil wells, of which 447 were on the West Coast of the United States.

While its traditional markets are mature, and it has operated conservatively as a regulated utility, National Fuel Gas Company has taken steps that could lead to its growth in the future. In early 1992, the company announced it formed a joint venture with Citizens Gas Supply Corporation of Boston, Massachusetts, to purchase, store, transport and market natural gas to other utility companies and their customers. That joint venture, Citizens National Gas Company, was established to provide National Fuel growth in new markets and was seen as a way for National Fuel to increase its flexibility while becoming more visible.

Principal Subsidiaries: National Fuel Gas Supply Corp.; National Fuel Gas Distribution Corp.; Seneca Resources Corp.; Penn-York Energy Corp.; Empire Exploration Inc.; Utility Constructors Inc.; Highland Land & Minerals Inc.; Data-Track Account Services Inc.; Enerop Corp.