NGI The Weekly Gas Market Report

While a $630 million refinancing package on Friday is a step in the right direction for Aquila Inc., Standard and Poor’s said it’s certainly not enough to offset the significant asset sales risks and desperate cash flow needs of the company. S&P cut Aquila’s corporate credit rating Friday to “B” from “B+.” It assigned a “B+” rating to Aquila’s new three-year $430 million senior secured credit facility. Aquila got a one-year $200 million loan for its Australian subsidiary, UtiliCorp Australia Inc.

While a breakthrough in aboriginal relations is about to dismantle a long-standing political obstacle to natural gas production and pipeline development in the Northwest Territories, the Canadian government and the industry stand warned that the problem of accessing native territory and rights could escalate.

Acknowledging the expanding role for liquefied natural gas (LNG) in the U.S. gas supply mix, the Federal Energy Regulatory Commission last week gave a major boost to three LNG projects — Southern LNG Inc.’s expansion of its Elba Island facilities in Georgia, AES Ocean Express LLC’s Bahamian import terminal and Tractebel’s Bahamian terminal — and expressed its support for the gas industry’s continued thrust in this direction.

In a markup of the Senate’s comprehensive energy bill last week, the Energy and Natural Resources Committee approved a large number of gas measures designed to speed up the production process, encourage construction of a pipeline to Alaska and smooth the way for permitting and approvals.

Alaska Gov. Frank H. Murkowski signed into law last week a renewal of Alaska’s Stranded Gas Act, HB 16, which authorizes the state to enter into negotiations with industry on the cost and terms of a natural gas pipeline project to move North Slope gas to markets in the Lower 48 states. Murkowski said the legislation is an important step toward getting the pipeline process moving on a faster track.

Liquefied natural gas (LNG) imports may find a potentially power market in the United States because break-even cash costs for new projects have fallen to about $3/Mcf and it costs even less for expansion, according to a new report by Standard & Poor’s Ratings Services (S&P). The report was issued Wednesday, the same day FERC moved three U.S. LNG projects forward and signaled its support for more (see related story).

Southern California Water Co. and a Washington State public utility district (PUD) are charging that “one or possibly two” FERC commissioners may have violated the federal agency’s rules against ex parte communications by participating in a conference call with Wall Street analysts in which the commissioners apparently addressed pending challenges to power contracts entered into with power suppliers.

If the federal government opens up now restricted areas to drilling and offers incentives to drill more difficult plays, there are still prospects in the United States on and offshore for substantial natural gas exploration and production, according to several oil and gas executives, who spoke Monday at the Ziff Energy Conference in Houston.

Traditional natural gas supplies will not keep pace with demand in the long term, and more U.S. companies likely will turn to the global liquefied natural gas (LNG) market in the years to come, a Northeast utility executive said in Houston Tuesday.