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AGL CEO Suggests Georgia Consider Offshore Drilling Access, Less Gulf Dependency

Natural gas customers in the Southeast and the East Coast generally face "a very challenging dynamic," in the wake of Hurricane Katrina. "We have all our eggs in the Gulf Coast basket," said AGL Resources CEO Paula Rosput Reynolds, who suggested Georgia has another coast with potential.

"In Georgia, we are highly reliant on the Gulf Coast for natural gas and oil," Reynolds told Georgia legislators last Wednesday. AGL's operations extend beyond Atlanta Gas Light to distribution companies from Florida to New Jersey. Operations all along the chain already had been impacted by steadily declining Gulf of Mexico production, and have seen the situation worsen with the devastating hurricane.

The area is "regionally disadvantaged. We are Gulf Coast dependent," Reynolds said, pointing out for years their location so close to the Gulf Coast meant cheap energy.

Right now the LNG terminal at Elba Island, GA isn't helping much, she said. "Elba Island currently is not accepting much supply. Most of the LNG is going to Spain" (Elba's imports rose nearly 70% in June and have remained high; see related story on LNG). Reynolds said Spain, which is highly dependent on hydroelectric power, is having the driest year in 60 years. "They are paying a higher price." Even the latest price run-up in U.S. natural gas prices does not put us into the world market. "In Europe they are paying $16/MMBtu to attract LNG."

"Our markets are not yet high enough attract world LNG." There will be more coming into production over the next few years and with a lot more on the market, "we'll see better utilization of Elba Island."

The AGL CEO pointed to the state of Virginia's interest in lifting the federal drilling moratorium off its coast. "It might behoove our state to look at offshore access." Production just offshore could give industry in the state "a strategic and competitive advantage."

The impact of Katrina will not be felt by natural gas customers immediately, Reynolds said. And she believes most production will be back in service before the winter season. However, the reduced supply from the hurricane-damaged industry means not as much gas is being put into regular storage, nor into the LNG storage and peak shaving operations that AGL and other distributors operate, liquefying pipeline gas and storing it for use during the peak winter period. The storage operations "will eventually catch up by buying gas that's more expensive."

AGL assisted interstate pipelines with transportation and safety issues related to Hurricane Katrina, particularly in Florida, Reynolds said. The company suspended marketer storage injection requirements last week. She noted AGL's marketing arm, Sequent, refilled its storage earlier in the injection season.

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