Calling it a first of its kind, producer EOG Resources ofHouston and independent power producer Calpine Corp., of San Jose,CA, announced Monday they have completed a multi-million-dollardeal for a one-year supply of natural gas from offshore Texas tiedto the price of electricity. Starting Jan. 2001 through Dec. 31,2001, the contract calls for 10 MMcf/d of gas.

With increasing market indicators this year of the link betweengas and electricity prices, EOG and Calpine officials said theone-year supply deal is a “mutually beneficial transaction” helpingboth companies improve their understanding of “the broader energymarkets in the U. S.” The deal allows an independent gas producerto sell directly to an independent power producer, eliminating themiddlemen.” This is the first gas producer to take a risk based onfuture electricity prices,” a San Jose-based Calpine spokespersonsaid.

“So if they think the price of electricity is going up, this isan excellent contract for them (EOG),” said Rick Barraza, Calpine’sinvestor relations director. “If we think we might be in a marketwhere the prices will stay stable or go down, this is a great dealfor Calpine.”

Barraza said Calpine is regularly analyzing whether rising gasprices hurt the company, and has found that they do not typically.This contract is another attempt to further insulate itself and putthat risk on the gas producers.

“If electricity is $50/MWh; gas is $5 for example,” Barrazasaid. “If electricity goes to $60, gas goes to $5.70, so we’repaying more for gas, but we’re getting more electricity revenue inthe marketplace. Also the price of gas is linked to a pre-negotiateheat-rate for the plant(s), but that is kept confidential.”

The EOG supplies are mostly offshore Texas and can helpsupplement some of Calpine’s fuel needs for its Houston ShipChannel power plant projects — a 750-MW Pasadena, TX, plant nowoperating and two under construction that total another 1,200 MW.Eventually, there are 14 separate pipelines in Texas through whichthe supplies could flow, the Calpine spokesperson said.

“We will be able to get the gas to many different places whetheror not we physically use it at the Pasadena plant or just tradearound it out of Houston,” Barraza said.

Richard Nemec

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