With state regulators reluctant to allow natural gas utilities to enter into long-term contracts for supply, including liquefied natural gas (LNG), a former Department of Energy (DOE) official envisions a scenario potentially developing in which intermediaries — nonregulated entities — would step up and assume the risk by purchasing LNG-sourced gas and then selling it to the utilities.
In a recent producer-consumer LNG study, The Abraham Group LLC, an international consulting firm, raised “this issue that public utilities in the U.S. won’t essentially sign up for long-term contracts, so you’re going to have to find intermediaries that [will] go in and sign a 20-year contract and then sell back to the utilities because [LNG] producers are not going to basically sell into Henry Hub over 20 years because they just can’t finance the project on that basis,” said Robert S. Price, who recently retired from DOE after 32 years. He is now president of International Risk Strategies LLC, a consulting group in Annapolis, MD.
“You’d have to have a non-regulated entity go in and sign the contract and take the risk and then turn around and sell it to the [utilities],” he said following an LNG briefing sponsored by the Center for Liquefied Natural Gas on Capitol Hill Monday. Price believes that natural gas marketers or producers could act as the intermediaries for utilities.
But “the question is: are they going to be willing to take the risk,” he told NGI.
Price said he wasn’t sure if this intermediary relationship was developing in the United States yet, “although you may [see it] …if they can’t get some of these deals going.”
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