Mindful of declining production in its traditional Gulf of Mexico area supply base, Atlanta, GA-based AGL Resources is focusing increasingly on the potential for LNG, including increased supplies from the two established LNG import terminals on the southeastern Atlantic Coast and possibilities for another import terminal on its waterfront property in an industrial area near Norfolk and Virginia Beach, VA, AGL Chairman Paula Rosput said Wednesday.
AGL is “looking at several proposals,” for LNG facilities north of Virginia Beach on the York River feeding into the Chesapeake Bay, with the company’s main focus being on pipeline takeaway capacity, Rosput told reporters in a Washington DC briefing last week. The company, through its Virginia Natural Gas subsidiary, owns waterfront property and has a 180-mile, high pressure joint-use pipeline that could carry gas from the area to connections with Columbia Gas, Dominion and Transco.
AGL is talking to producers about the possibility of a new LNG import terminal and also to Dominion, which has proposed barging LNG from the pipeline-constrained Cove Point, MD LNG facility, on the eastern side of the Chesapeake to storage tanks at points along the East Coast via specially designed barges (see Daily GPI, June 14). The barges conceivably could be off-loaded at an AGL site on the western Chesapeake shore with access to the long line pipelines.
With the Elba Island, GA LNG terminal, again the problem is “there is not adequate pipeline capacity to takeaway the totality of the storage capacity on winter days,” the AGL chairman said. The terminal originally was built to protect local markets, but now is being expanded as a wholesale facility. AGL is proposing to buy some pipeline assets from El Paso’s Southern Natural Gas pipeline south of Atlanta and “I can see us working in a cooperative way with Southern” to de-bottleneck transportation from the Elba Island plant. That plant is currently being expanded and could eventually be expanded again, Rosput said.
It’s all about having a “configuration that assures that we have straws in several directions. If you’re 100% reliant on the Gulf Coast, it’s a very troublesome specter to think about affordable, available energy when you’re pulling from a depleting area.” AGL is not looking to monopolize the market, but “the fact is marketers don’t make long term commitments to gas supply. So as a practical matter you have to determine what’s the best configuration of pipeline that’s going to assure you the best mix of long-term access in an environment where nobody contracts for the supply.”
AGL’s Atlanta Gas Light distributor has been challenged at FERC by Scana Energy Marketing for agreeing to extend some of its long-term transportation contracts with Southern Natural Gas. Scana contends Atlanta Gas should be required to permanently release its interstate capacity and allow marketers in the unbundled Georgia market to contract for their own upstream capacity (see related story). Scana is one of the four largest retail marketers in Georgia. AGL’s 70%-owned Southstar Energy Services has a 38% retail market share.
Rosput said the Southern contracts that were renewed were for specialty services such as no-notice service “that it was inconceivable to abandon. Where we have left a lot of optionality is on long haul, non-specialty services where we can think through over time what this depletion of the Gulf Coast means vis-a-vis greater access at Elba. We’re trying to be smart about the environment we’re in. We’ve renewed the no-notices services, but we have not renewed all of the long hau, 365 day capacity from the Gulf Coast.”
Kevin Madden, former FERC general counsel, now executive vice president of distribution and pipeline operations for AGL, pointed out that the parent Scana Corp., while challenging the rules in Georgia had withdrawn its support for deregulation in its home market in South Carolina. Madden said the deal with Southern Natural would rationalize AGL’s system and ensure access to supplies coming in at the Elba Island LNG terminal. AGL is continuing to look at reconfiguring its system to ensure supply and would look at acquiring other pipeline assets to do that. “We’re in the hunt.” He also said “2004 is going to be the year for AGL. This is where we move to the next level,” suggesting that changes may be forthcoming in a couple months.
AGL has been rebuilding from its slump following Georgia’s deregulation which propelled the company out of its entrenched utility niche. Rosput, who has been leading the transition as chairman and CEO for nearly four years, is a pipeline and power industry veteran who has held executive positions with Duke Energy North America and Pacific Gas Transmission.
AGL, through its Atlanta Gas Light subsidiary, serves 1.5 million gas distribution customers throughout Georgia and additional customers through its Virginia Natural Gas subsidiary in southeastern Virginia and Chattanooga Gas Co. in Tennessee. It’s the southern location, the fact that between 80% and 90% of its gas is consumed on peak days and those days number about 20, that complicates the supply situation. Locking up a lot of long-line capacity for 365 days a year doesn’t make sense, and for this reason, LNG does. The company is the largest operator of small market area LNG facilities, where the gas is piped in, gasified and stored for peak use. AGL also has several propane air booster plants and is constructing another.
The company also sees possibilities in Appalachia. “Today there’s not that much production and it doesn’t go that far; but at these prices, given the consolidation in the Appalachian Basin, could we see more reliable production being exported farther?” Rosput offered.
Since Georgia is the only state that has been through total unbundling and come out the other side, Rosput was asked about the ultimate result for consumers. The state currently is served by 10 marketers of which four (including an AGL affiliate) are dominant. Georgia consumers are not seeing much difference in natural gas prices compared to those in surrounding areas, the AGL chairman said. But they do get a variety of service options, and “companies don’t have the problem of regulators trying to retrospectively look at whether somebody hedged properly or not; it’s a business risk. There also is more efficiency around the buying and dispatching of gas; it’s a very stable system today” dominated by four large creditworthy marketers. Systems are being automated and there is more customer interaction.
Rosput also said the provider of last resort system, which the state participates in funding, provides a very orderly process for low income customers who can’t pay their bills. Conversely, marketers are quick to cut off those who could, but don’t, pay. In the past those overdue bills would just have been rolled into the utility’s bad debt category and the cost spread to others on the system.
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