You might have missed it, but hurricane season officially started June 1. Tropical Storm Andrea made landfall June 6 about 10 miles south of Steinhatchee, Florida. Fortunately, Andrea did not have a significant impact on energy markets. Storm season usually peaks between mid-August to October, but it is best to be prepared whether you are a resident of an area vulnerable to hurricanes or a buyer of energy, which is vulnerable to higher prices during this time. Remember that in 2005, Hurricanes Katrina and Rita caused natural gas futures to exceed $12/MMBtu for the first time ever.
One significant change since 2005 is the development of shale gas. Per the U.S. Energy Information Administration (EIA), the amount of the U.S. gas supply produced in the federal Gulf of Mexico region fell from 26% in 1997 to 6% in 2012. This change is due to onshore extraction of shale gas reserves. And the result is that the amount of offshore supply that is vulnerable to interruption by hurricanes is much lower.
Pennsylvania state lawmakers returned to the Pennsylvania Capitol June 3 with the state budget as the top order of business. There are two energy-related bills moving through the legislature that aim to enhance natural gas service in the Commonwealth that Direct Energy is monitoring. They are HB 1188 (sponsored by Representative Payne) and SB 738 (sponsored by Senator Yaw).
HB 1188 addresses eliminating the current interest rate structure utilities are allowed to use when reconciling purchase gas costs and; eliminating the migration rider charged to customers who switch to a competitive supplier. By addressing these two concerns, it creates a more equal “apples to apples” price comparison for customers between utility and supplier offers.
For those of you watching the natural gas markets (and you should be as they remain important to both retail gas and power prices), there continues to be a stubborn resistance to the idea that prices should be higher than a year ago. You might ask - isn’t there enough shale gas out there to keep NYMEX gas futures below $3.00 per MMBtu? There isn’t one answer; rather, it’s the “death by a thousand cuts” scenario. Some of our previous blog posts have covered long-term impacts of potential liquefied natural gas (LNG) exports that should start later this decade. But, what about the present?
One key change to U.S. supply-demand has been the impact of imports and exports. While supply has been unquestionably strong due to the shale gas boom, there has been a significant decline in net imports simultaneously.
After hearing the news that our parent company, Centrica plc, signed a 20-year agreement to purchase liquefied natural gas (LNG), I thought it would be a great time to explain what LNG is and how it works. So, here goes nothing.
LNG is the result of cooling natural gas to about -260F, turning it from a gas into a liquid, coined liquefaction. Why cool natural gas to the point where it liquefies? If you want to transport it long distances and a pipeline isn’t available, liquefying the gas is the only option. The process increases natural gas’ energy density greatly, allowing it to be economically shipped. Countries that have few natural resources but strong economies, such as Japan, South Korea and Great Britain, are large importers of LNG. They have little or no domestic production and building a pipeline across large bodies of water isn’t feasible. These and other countries rely on LNG cargo tankers to supply their natural gas needs. The tankers resemble oil tankers but are specially constructed and insulated to carry the super cool LNG. The tankers dock at a terminal in the receiving country and a process called regasification takes place, or turning the liquid back into a gas so it can be injected into the pipeline infrastructure.
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Centrica plc, the U.K.-based parent company of Direct Energy, partnered with Qatar Petroleum to buy $1 billion in natural gas and crude oil assets in western Canada Monday from Suncor Energy. Direct Energy will now own the production assets to supply 60% of its retail gas customers in North America. Currently, they provide 20% of its own gas. Centrica will operate the business, which is subject to regulatory approval of the Canadian government.