Florida Power Light

We talk a lot here in the RBN blogosphere about the bearish market effects of the Shale Revolution, and frequently highlight the U.S. Northeast natural gas region — rapidly growing gas production from the Marcellus/Utica; oversupplied, trapped-gas conditions; and resulting regional price discounts. These dynamics are driving massive investments in pipeline reversals, expansions and new capacity to move the gas to market. Northeast producers are counting on that increase in takeaway capacity to relieve price pressure and balance the market.  But all this gas moving out of the region needs a home.  Fortunately, new demand is emerging, from exports (to Mexico and overseas LNG) and into the U.S. power sector.  One of the big growth regions is the U.S. Southeast, where power utilities are investing heavily in building out their fleet of gas-fired generation plants and are banking on this new, unfettered access to cheap Marcellus/Utica gas supply. Today’s blog provides an update on power generation projects coming up in the southern half of the Eastern Seaboard, based on a recent report by our good friends at Natural Gas Intelligence — “Southern Exposure: Gas-Fired Generators Rising in the Southeast; But Will Northeast Gas Show Up?”

For companies whose success depends on low-cost natural gas, finding ways to mitigate gas price risk is critical. Using financial hedges is one way; another (though far less common) is acquiring working interests in gas production assets—that is, buying a physical hedge. Florida Power & Light, which consumes more gas than any other US electric utility, is getting into the act. But others—including a leading fertilizer manufacturer and a big steel maker—helped pioneer the approach. In this episode of our series on major gas consumers buying gas production assets, we look at how these earlier efforts are panning out, and how the flexibility built into the deals is paying off.

If a company expects to consume large volumes of natural gas for decades to come, why not remove at least some price risk by acquiring a working interest in gas production assets? Florida Power & Light (FPL), which burns more gas than any other US electric utility, recently asked regulators to permit the company to co-develop up to 38 gas production wells in the Woodford Shale with PetroQuest Energy, and to establish rules to let it make other, similar investments in the future. FPL is not first in its plan to acquire gas interests as a physical hedge; leading fertilizer and steel companies already have taken that plunge, with positive results. Today we examine what could become a trend: Major gas consumers buying a piece of the gas production action.

“Aruba, Jamaica, ooo I wanna take ya. Bermuda, Bahama, come on pretty mama …” While most of us trapped in the icy grip of this winter’s Polar Vortex can only dream of cruising from Florida to the Caribbean, “tropical drink melting in your hand,” Nova Scotia-based Emera Inc. has a plan to do just that (minus the drink), and on a regular, ferry-like schedule. Emera wants to export compressed natural gas from the Port of Palm Beach to its Grand Bahama electric utility and other Caribbean buyers starting as soon as 2015. The volumes of natural gas involved aren’t huge, but the plan is an example of market innovation driven by the US shale revolution. Today we examine Emera’s plan to move US gas to “the islands.”

The idea of using natural gas produced in Pennsylvania to generate power in South Florida would have been considered implausible or even unthinkable just a few years ago. But now it seems likely that by mid-2017 Marcellus-sourced gas will, in fact, be moving deep into the Southeast. Williams’ planned Atlantic Sunrise project will make its Transco mainline bi-directional as far south as Station 85 in southwestern Alabama. From there, Spectra Energy and NextEra Energy’s Sabal Trail pipeline will move Marcellus and other gas into central Florida, and NextEra’s Florida Southeast Connection line will take gas still further south. Today In the second of a two part series, we conclude our analysis of the transformational Atlantic Sunrise project.