Challenges

North American natural gas markets face new challenges with greater demand and a need for infrastructure, but the industry — and regulators — should learn from past struggles and let the market help solve the problems, according to Mark Radtke, president of Integrys Energy Services, Inc.

Infrastructure investment needs and a changing energy mix in the Pacific Northwest present challenges and opportunities for players throughout the West, and CFOs from two major West Coast players — Puget Sound Energy (PSE) and Pacific Gas and Electric Co. (PG&E) — told Wall Street early this month their utilities are actively engaged in newly proposed projects in the region.

Demand response is one of the top challenges currently facing electricity markets, FERC Commissioner Jon Wellinghoff said last Wednesday.

Energy officials last Tuesday said federal regulators still face a number of challenges in their effort to achieve a competitive wholesale electricity market. Some went as far as to say that competition in the bulk power markets has been a failed experiment, and called for a possible return to more regulation. But others weren’t as quick to admit defeat, pointing to the improvements in the power market that have been made over the last decade.

Questions about the impact on natural gas volumes/prices and potential legal challenges lingered last week after California Gov. Arnold Schwarzenegger signed several landmark global warming laws. Pressure on already tight natural gas supplies and wholesale prices could result from the new law, according to the head of the Industrial Energy Consumers of America (IECA).

While price volatility challenges everyone in the gas industry, unpredictable basis differentials and a dearth of basis hedging mechanisms have become a thorn in the side of producers especially.

FERC on Thursday dismissed challenges to a January order that, in a reversal of policy, signaled the agency’s willingness to allow interstate natural gas pipelines to use basis differential pricing in negotiated-rate transactions with shippers.

Higher and more volatile natural gas prices have created opportunities for some and challenges for others. Hedging became more popular with producers last year as they attempted to lock in higher prices. Meanwhile, gas buyers tangled with a difficult market while wondering what is to come.

While it continues to face challenges and criticism from the financial community for its continuing losses and relatively heavy debt load, San Jose, CA-based Calpine Corp. sees the wholesale power market turning around in key areas and is determined to play a role in importing liquefied natural gas (LNG) along the West Coast of North America, according to the CEO Peter Cartwright.