Changes in regional and global natural gas pricing, along with the transition to low-carbon energy, are creating challenges and opportunities for large natural gas buyers in North America, a panel of experts agreed Wednesday (July 21).
The discussion at the LDC Gas Forums-Northeast event in Boston came a day before prompt-month Henry Hub prices surpassed the $4 mark for the first time since 2018.
Growing liquefied natural gas (LNG) export demand has led to increased competition for molecules at the benchmark Henry Hub trading location in Louisiana, said CF Industries Inc.’s Catherine Payne, manager of raw materials.
CF, one the world’s largest manufacturers of nitrogen and phosphate fertilizers, consumes about 1 Bcf/d of natural gas as a feedstock and fuel source for its facilities in Canada, the United States, and to a lesser extent, the UK.
CF’s Donaldsonville, LA, nitrogen facility connects directly to physical supply from Henry Hub via intrastate pipeline. The site accounts for almost half of CF’s gas consumption.
Payne said that the competition at Henry has not caused supply challenges for CF, but rather is reflected in the growing number of locations trading at a discount to the flagship U.S. hub.
Henry Hub “used to be our least expensive, or one of [the] least expensive sites in our system, and I would say some other locations now are more cost advantaged, so I think that’s pretty interesting,” Payne told the gathering.
The United States is not the only place where natural gas prices are resurgent, however, as European and Asian prices also are recovering from last year’s lows.
An incremental ton of fertilizer on the global market is priced off of international energy prices, Payne said. As a result, CF has “been really well positioned to take advantage of the growing differential between Henry Hub and global energy prices,” she said.
For gas utilities, meanwhile, the priority is ensuring reliable and safe delivery of gas to customers regardless of price, said Dominion Energy Inc.’s Craig Colombo, LDC gas supply strategic advisor for East Ohio and West Virginia.
Colombo’s job, he said, is to ensure that Dominion’s natural gas storage levels in his area are near full by the end of October in order to respond to winter demand surges. He said the company expects no issues achieving that this year.
While price rises must be passed onto the consumer, “the one good thing is that they have experienced a lot of low rates for many years as the prices have dropped,” Colombo said.
The sentiment was echoed by fellow panelist Greg Morse, director of policy and planning for Vermont Gas.
Eric Schiffer, principal marketing strategist for Detroit-based DTE Gas Co., offered some perspective as well, noting that current prices – while higher than last year – still are far lower than what had been projected five to 10 years ago.
He also highlighted that winter 2021 gas prices were the lowest they’d been since the 1990s, “so let’s take this with a grain of salt.”
DTE Gas Co. is a predominantly pure-play gas utility, with about 90% of earnings coming from its regulated business. It serves about 1.3 million natural gas customers in Michigan.
All five participants on the panel indicated they use natural gas price indexes published by price reporting agencies such as NGI as part of their gas procurement processes. Payne said CF conducts transactions in both the physical and financial natural gas markets. Colombo said his team at Dominion conducts physical-only transactions in Ohio, but uses the physical and financial markets in West Virginia.
The other panelists said they transact mostly or entirely in the physical market.
Four of the panelists said that all or substantially all of their gas purchases are tied to some type of natural gas price index, with a mix of prompt-month, prompt-season, and multiyear terms.
Schiffer was the exception, explaining that about 75% of DTE Gas purchases are conducted via negotiated fixed-price contracts for a delivery term of up to two years, and that the remaining 25% are conducted for month-ahead delivery and tied to some type of index.
All participants said that day-ahead gas purchases are rare in their roles.
The panelists all said their respective firms managed to avoid any material supply cuts or force majeure events during Winter Storm Uri in February, citing their diverse supplier portfolios and access to ample natural gas storage.
Asked to rate their confidence in natural gas price indexes on a scale of one to five with five being the highest, all five panelists said they would rate it as a five.
Payne said the natural gas industry enjoys “an embarrassment of riches in terms of price data,” explaining, “There are a lot of other commodities that don’t have as much visibility or frequency” in terms of access to price movements.
Greening the Gas Mix
Dave Janisse, manager of gas supply for Enbridge Gas Inc., said the firm does not expect to make major changes to its supply portfolio because of surging prices.
Any changes in that portfolio, he said, rather will be driven by environmental, social and governance (ESG) factors such as ensuring the supply of responsibly sourced gas (RSG), renewable natural gas (RNG) and hydrogen.
Ontario-based Enbridge Gas Inc. (a subsidiary of Enbridge Inc.) is the largest natural gas utility in North America in terms of volume sendout, and is the owner/operator of the 281 Bcf Dawn natural gas storage facility and the over 7.5 Bcf/d Dawn-Parkway transmission system.
Morse, meanwhile, said Vermont Gas already has RSG and RNG in its portfolio. While these products are not yet flowing to the utility’s customers, he said Vermont Gas is using them to offset its own greenhouse gas emissions.
The company will likely increasingly rely on virtual pipelines, i.e. trucks, to source future supply of natural gas, RSG and RNG, he said.
CF also is looking to promote development of the hydrogen economy through low-carbon production of ammonia and hydrogen, Payne said.
“Ammonia is a critical enabler for the storage and transport of hydrogen and can also be a clean fuel in its own right,” CF said in April upon announcing a contract to build a 20 MW alkaline water electrolysis plant at the Donaldsonville complex.
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