Even in the midst of a credit/credibility crunch that has shrunk its stock price and slowed its aggressive development program, San Jose, CA-based Calpine Corp. is looking to expand its natural gas operations, including a lusting eye toward the coal-bed methane industry in the heartland of the U.S. During an interview with NGI Tuesday, Calpine’s chief gas executive said he expects prices to trend upward as new supplies get tighter.

“I think coal-bed methane is the future,” said Bill Berilgen, who was recently named president of Calpine Natural Gas Co. He came to Calpine and originally joined the company as part of its purchase of Texas-based Sheridan Energy in 1999. “There is quite a bit of untapped coal-bed methane in this country. That is an area we are gearing up to get into right now.

“We’re getting very optimistic with some of the things we have seen. And we’re buying acreage while it is still cheap.”

Calpine first quarter results for its gas operations were very favorable, although Berilgen said it is going to be difficult to repeat them on a regular quarterly basis with the growing competitiveness of the natural gas wholesale business. In the first three months this year, he said the company provided 374 MMcf/d from its own supply portfolio, compared to 150 MMcf/d provided to its power plants in the first quarter of 2001.

The average cost of the gas burned in Calpine’s power plants in the first quarter was $2.09/Mcf, compared with $2.40/Mcf on average in the same period last year. The company provided 32% of its fuel needs, compared to 28% in the first quarter of 2001. Its long-term goal is to provide at least 25% of its fuel needs from its own resources, said Berilgen, who added that the company expects its fuel requirements by year-end to be around 2 Bcf/d, and that will double to about 4 Bcf/d in two to three years, if all the plants now envisioned to come online by then are completed in that timeframe.

Noting that he sees the natural gas component of Calpine’s operations growing, Berilgen asked rhetorically: “As long as we can provide it cheaper (than the average Nymex prices), why wouldn’t we want to grow the gas business? You’re going to pay for that fuel anyway. Getting into long-term contracts for gas is going to get tighter, too, so why not own reserves for the security of supply?”

Calpine is concentrating on four geographic areas for its traditional gas properties: California, where it is the largest independent producer, mainly in the Sacramento Valley; the Rockies, particularly in the San Juan and western Colorado basins; South Texas; and Alberta, Canada, about 40 miles north of Calgary near where Calpine has a new power plant under construction. For coal-bed methane, the company is looking in traditional locations, but also Kansas, Missouri and Illinois, all three of which Berilgen thinks have solid potential.

“They (Kansas, etc.) are not as productive as San Juan, but they are very shallow coal beds, so with minimal acreage and drilling costs,” he said. “There are a lot of unmined, shallow coal beds in those states. It takes a good price — $3.50/Mcf. Some of the gas content of this coal was surprising [and] similar to the San Juan. But you have to get a lot of it to justify the pipelines and gathering systems to the main transmission lines.”

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