Shale Daily / NGI All News Access

Southwest Gas: LDC Long on Supply With or Without Rockies

Las Vegas, NV-based local distribution company (LDC) Southwest Gas Corp. is sitting pretty this winter and for the foreseeable future in terms of adequate natural gas supplies. The gas-only utility's three-state service area divides into three regions, each with a different set of supply basins, and the shale gas boom affects two of those operating areas.

"Right now all of our pipelines have adequate capacity to serve us," said Bill Moody, Southwest's vice president of gas resources, during an interview with NGI's Shale Daily, calling the distributor's supplies abundant and diverse, with the only threats of curtailment coming from frozen wellheads or pipeline constraints caused by force majeure. "We're pretty much a pure LDC, and as such, we're very accustomed to purchasing peaking supplies, and we use a one-in-30-years weather forecast, and we plan for that event every year."

The only change in its three major service regions is in southern Nevada-California (desert-mountains), where increasingly Southwest is relying mostly on Rockies gas because of the favorable prices, Moody said. Traditionally, its northern Nevada area taps both Canadian and Rockies supplies; the rest of Nevada and its slim service area in Southern California have used Permian Basin and San Juan Basin, in addition to Rockies supplies, and Arizona (particularly the population centers of Phoenix and Tucson) gets all of its gas from San Juan and Permian supplies.

On average, Southwest's annual throughput totals 120-125 Bcf. The LDC has storage in the form of a small liquefied natural gas (LNG) plant in northern Nevada and in Southern California it can access some storage through the Sempra Energy Southern California Gas Co. system.

Generally, Moody is a big fan of shale gas and the burgeoning Rockies supplies, both from the standpoint of the lower prices and reliable supplies they are affording Southwest Gas, but also from the standpoint of the entire gas industry, particularly in the West.

"In southern Nevada we already know that for the first time we will have the majority of our supplies contracted from the Rockies," Moody said. "This time [in our renegotiations of supply contracts] we were able to formulate some citygate offers as a peaking LDC that were highly beneficial to us and allowed us to avoid having to sign long-term, year-round deals right now."

Moody said Southwest Gas is no longer taking supplies (for southern Nevada) -- except for little bits in the peak months -- from the Southwest basins and the rest are all Rockies supplies from Kern River Gas Transmission. That change kicks in Nov. 1, 2011, he said. Roughly a third of Southwest's throughput is represented in southern Nevada-California; a little more than half (53%) is represented in Arizona, and the rest (14%) goes to northern Nevada, the smallest of its three divisions.

In the northern end of its system, which has depended on long-term contracts with Northwest Pipeline and TransCanada's Tuscarora Pipeline from Malin, OR, which interconnects with Southwest Gas' Paiute Pipeline, Southwest has seen the most downward pressure on gas prices from the advent of the shale gas boom. "Back before shale gas began to dominate the market, on Northwest Pipeline, we had some legacy contracts requiring us at times to order gas from Sumas, [WA, on the Canadian-U.S. border] in order to make the Northwest system work from both ends.

"Sumas prices at those times would shoot way up, hitting $12 to $14 at times, but now with the advent of all the other gas in the world, we're not seeing those [price spikes] anymore. We have more choices, and actually Sumas has been a relatively low-priced location, trying to compete with the Rockies somewhat, although it still has higher prices, but just not as much."

Moody agreed that generally Southwest Gas and other LDCs these days are enjoying a buyer's market for gas.

While he was reluctant to give specifics, Moody did acknowledge that the Rockies and shale gas are significantly changing the industry generally and Southwest Gas in particular. Less volatility in pricing and abundant supplies have to impact strategies in terms of hedging, contracting, and attitudes toward diversity of supply.

"Right now, from everything that I have been able to research I'm convinced that shale gas is a game-changer," said Moody, but he added three caveats: more gas is readily available and the shale basins should be able to provide that for spikes in demand; governments can always get involved, such as New York and Pennsylvania with Marcellus Shale; and states like Nevada and Arizona are in the midst of persistent recessions and it's unknown what will happen to gas demand and prices when they begin to rebound economically.

"What it looks like to me is that we know where all the gas we need is located, but we just need the right prices to support all of the drilling."

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