As U.S. electric utilities become increasingly dependent on natural gas-fired power, they’re looking for ways to mitigate the risk of future gas-price volatility. One hedging option that’s gained some attention lately is direct utility investment in natural gas production assets, the idea being that by acquiring gas-in-the-ground—especially now, when gas prices seem low and many financially strapped gas producers are eager to make deals—utilities can lock in the price of at least part of the future gas needs. Today, we consider the latest efforts by electric utilities to expand their gas hedging strategies—and hold the line on future gas prices—by including direct investments in gas production assets.
In a classic episode of “I Love Lucy” (http://www.dailymotion.com/video/x3b6z86), Lucy convinces Ricky that now that they are living in the country, they could save money by raising chickens. “Chickens lay eggs, right? And eggs are 75 cents a dozen. That’s clear profit … Once the chickens are all egged-out, you sell them for poultry, you can’t lose.” Of course … they lose—though it does result in Fred and Ethel Mertz moving out to Connecticut to join the Ricardos.
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