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Gas Buyers Enjoy Plentiful Supplies, Low Prices, But...

For large buyers of natural gas, these days "the living is easy" with plentiful supplies and sustained low prices, but the current environment also comes with operating challenges from externalities facing local gas and electric distribution companies, a panel of gas buyers said Wednesday at the final session of the LDC Gas Forum Rockies & the West in Los Angeles.

Increasing volumes of solar and wind power, coal-fired generation retirements, reversing flows on the Rockies Express Pipeline (REX) and the prospects of El Nino this winter are all factors that can affect natural gas buying and use, particularly by power generators, according to the panelists from Southern California Gas Co. (SoCalGas), Arizona-based Salt River Project (SRP), Colorado Springs (CO) Utilities (CSU), and the city of Pasadena (CA) Department of Water and Power.

"Low [gas] prices are probably here to stay, at least for the next few years, and the reversal of REX is going to play right into that," said Kent Price, SRP senior marketing representative. "We [in Arizona] are going to see the effects of REX changes, but exactly how is still unclear. We aren't going to buy any of that gas, but it is going to affect all those markets that have a domino effect across the country east to west."

Colorado Springs Utilities' Na Bocangel, senior gas and forward trader, is hoping the east-west reversal of gas flows will add to lower gas prices and more supplies produced in the Rockies staying there. "The reality is there are still pipelines going east and south, so we will probably see pretty low spot prices in our region, so we are hoping to buy some really cheap gas, similar to pre-REX times," Bocangel said, adding that her combination municipal utility buys about 23 Bcf annually, including a 1,100 MW power load.

Saying that his muni power and water utility is unaffected by the east-west flow reversal, Pasadena's Erik Johnson, principal gas trader, said, "when you start buying more renewables [as all California power utilities are doing], you’re going to have to buy more storage and gas as a backup because the gas-fired units can be pulled up and started right away." Johnson's utility added a fourth gas-fired peaking plant as a result this year, he said.

"As more solar continues to come online, natural gas is going to keep the same growth pace as it has because everyone has to have backup power," Johnson said. One change from all this that he noted was prices now go down in the middle of the day as opposed to when the peak used to have a higher price. And the most valuable resource in the ramp-up between the sun going down and the wind picking up is gas-fired peaking generation, according to Johnson.

With the advent of more renewables, the peak load times have been pushed back later in the day from the traditional 4 p.m to as late as 7 p.m. or later, said Steve Baird, gas acquisition manager at SoCalGas. "I would imagine as the state requires more and more renewables, the volatility in loads is going to be high," Baird said.

SRP’s Price said there is a wider effect on power generation fuel mixes beyond California from the growing solar power coming on the grid in that state. On shoulder months, the Arizona utility can buy excess of California solar and delay until later in the day ramping up its gas-fired generation units.

"As an electric utility using gas-fired generation to shape loads, we have seen our gas buys increase significantly in recent years," Price said. "I've been doing this now about 18 years, and back when I started, if we burned 50 MMcf/d that was a big day. Now our record peak was in late June this year when it hit 474 MMcf/d. A big part of those number marching upward is low natural gas pricing, so with everything so cheap at night we can back off our coal generation and keep the gas units running [avoiding the costs of ramping up/down]."

Price sees an increasing number of indirect factors in various parts of the U.S. gas supply chain affecting parts of the industry, and at SoCalGas, Baird said he thinks the REX east-west reversal will be good for his large gas-only utility "as long as we're not fighting with the East for Rockies supplies."

Similarly, both storage and the prospects of an El Nino weather event have the buyers' attention, too. Baird thinks if SoCalGas sees just "a little of colder weather" from El Nino, the utility will get back to the traditional parking of gas by customers.

For SRP, Price said the power utility is looking to build up its storage; CSU in Colorado has 4 Bcf of storage in three different facilities, according to Bocangel; and Pasadena uses its storage as a hedge, Johnson said. "The trick now is to decide whether the price is low enough to inject?" he said.

Noting the past two years for SoCalGas have been extremely warm (one-in-a-100, and one-in-70 years), Baird said he is looking forward to a winter where there will be more of a normal gas burn. "Last winter we were swimming in gas in storage and really had to pull out of our load stack, so I am looking to the opportunity to sell some gas on some [demand] spikes [at high prices presumably]," he said.

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