With 2 Bcf/d in natural gas supply needs that will almost double in the next few years, San Jose, CA-based Calpine Corp. plans to supplement its own 1 Tcf natural gas holdings in the U. S. and Canada with a major supply agreement for liquefied natural gas (LNG) that is slated to start arriving on the West Coast of North America by 2006-07, according to the company’s CEO speaking during a second quarter earnings conference call Wednesday. Gas will continue to “a very, very important part” of Calpine’s operations, he said.

Calpine sports a portfolio of mostly new power plants that will reach about 30,000 MW in 22 states and three Canadian provinces by 2005, which Peter Cartwright, the company CEO/founder, calls “unique and almost entirely natural gas-fired.” The power plants are operated as “an integrated system,” which makes it the most modern and cleanest fleet geographically scattered around the country, Cartwright said.

With a “window” into the natural gas market from its own exploration and production unit, Calpine Fuel, the large power plant developer/operator is currently negotiating with “several” potential suppliers and hopes to soon have a long-term deal for LNG supplies. Longer term, Cartwright told the conference call, Calpine expects to have a daily gas demand averaging 3.7 Bcf/d that will be satisfied by four 25% increments of: (a) own source gas, (b) long-term domestic/Canadian contracts, (c) spot domestic contracts, and (d) LNG imports.

Calpine’s current gas mix is: 21% from its own reserves, 50% in long-term contracts, and the rest from spot market purchases. Among its own gas reserves, Calpine has about 750 Bcf of proved, producing reserves and another 250 Bcf of proved undeveloped, and it is currently producing about 270 MMcf/d. In addition, the company has about 900,000 acres of undeveloped potential production field land in the United States and Canada.

“We are currently in discussions with a number of companies to secure a supply of LNG for the future,” Cartwright said.

“Natural gas is the fuel that will drive our power fleet and any new generation for many, many years to come,” he said. “Our plants are the most efficient around; we generate more kilowatt-hours for significantly less net gas use, and we have a significant gas production company so we know what goes on in gas markets.

“We’re confident that there will be sufficient gas available at reasonable prices for many decades to come.”

Calpine will continue to use its own “equity” gas supplies to hedge long-term, fixed-price power sales agreements and the balance of gas they buy will be “tied to indices that are passed through to our customers,” said Cartwright, noting that he thinks the company has successfully avoided “taking risks on the volatility of natural gas.”

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