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GasMart 2011: Shale Gas Worth Fighting For, Say Buyers

Natural gas purchasers say they are switching more of their fleet vehicles to natural gas, adding transport capacity and are trying to stay organized and get the best deal for gas. But they are also increasingly concerned about the public perception of the safety of hydraulic fracturing (fracking) and its effects on the shale gas market.

"We have this 'not in my backyard' syndrome, and there have been attacks on shale gas already in Pennsylvania and elsewhere," Steve Elsea, energy services director for Leggett & Platt, told an audience at GasMart 2011 in Chicago on Thursday. "The environmental extremist will point to anything to stop, greatly control or increase the price of shale gas. It's incumbent upon the producers, the end-users and everybody in the supply chain to step up to the plate with our policymakers and educate them."

Elsea said the manufacturer uses about 6,000 Dth/d of natural gas, down 50% from four years ago because of the economic downturn and the company's decision to sell its aluminum business in 2008. He said shale gas was an exciting opportunity for the nation but urged the audience to be vigilant.

"Our industrial engine has been running for the last 150 years on abundant, cheap energy," Elsea said. "Unfortunately, there are things [like the discourse over fracking] that keep coming to the forefront."

Michael Staed, energy procurement manager for Anheuser-Busch, concurred. He said his company, which uses 12 million Dth/year of natural gas, was also concerned about the fracking debate.

"Many producers are very much engaged to address public concerns over fracking activities," Staed said. "That is something that is very important to us as an end-user. We recognize how much volatility that could drive to the system. Continue to do what you're doing, continue to push those messages and shield us, the end-user, from that volatility."

Daniel Lopez, energy procurement manager for PepsiCo, said the company uses 15-20 Bcf/year, an amount that has decreased by more than 33% over the last 10 years thanks to productivity and sustainability initiatives. He said PepsiCo uses about 50% of its gas to fry or bake snack foods. Other uses include pasteurizing orange juice and other beverages, generating electricity at three U.S. plants and drying leftover orange peel to sell as cattle feed.

Lopez said that over the next six to nine months, PepsiCo would evaluate a proposal to build compressed natural gas (CNG) fueling stations at its major manufacturing sites. He said the company -- which has the third-largest corporate fleet in the U.S. -- was currently operating four CNG tractor-trailers in Southern California and plans to purchase 16 more.

"A lot of people in the industry got burned in the '90s [from CNG]," Lopez said. "They went out and invested in fueling stations, but it's not like 'Field of Dreams;' if you build the station, the consumer will not necessarily come. But today the economics are compelling. We have a moderate and stable gas price outlook and a very high and unstable oil price outlook. Looking at what we pay for gas and what we pay for diesel, we have between $2.50 and $3.00 per gallon-equivalent margins to justify any incremental investment in the [CNG] vehicles and any stations that we might put in place."

Lopez added that PepsiCo was looking to add its own transport capacity for a new plant in Southern Georgia because of fears that a reliable source of gas could one day be hard to come by.

"We generally rely on suppliers to deliver firm service to our citygates, but gas demand is increasing for power generation [and] coal plants are either being retired or taken offline," Lopez said. "We believe that even in a gas-flush environment, we are likely to see areas of the country where end-users will be bumped or have more difficulty finding reliable gas deliveries."

John Ragland, global energy director for Johnson Controls, said his company spent $253 million on energy in 2010 and used 4.6 million Dth of natural gas, the majority of which was used to melt lead in the production and recycling of car batteries.

"We're trying to report our numbers better, get better information and lower our costs through buying [energy] better," Ragland said. "We're also trying to use less [energy] and get the best people to manage it."

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