As Prompt Month’s Henry Hub surpasses $ 4, North American gas buyers say price hike is a mixed bag
Changes in regional and global natural gas prices, along with the shift to low-carbon energy, are creating challenges and opportunities for large buyers of natural gas in North America, a panel of experts recognized. Wednesday July 21.
The discussion at the LDC Gas Forums-Northeast event in Boston took place a day before the Henry Hub of the Month’s Prompt prices broke the $ 4 mark for the first time since 2018.
The growing export demand for liquefied natural gas (LNG) has led to increased competition for molecules at the Henry Hub benchmark commercial site in Louisiana, said Catherine Payne of CF Industries Inc., head of raw materials.
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CF, one of the largest manufacturers of nitrogen and phosphate fertilizers in the world, consumes approximately 1 billion cubic feet per day of natural gas as a feedstock and fuel source for its facilities in Canada, the United States and, to a lesser extent, in the United Kingdom.
CF’s nitrogen facility in Donaldsonville, Louisiana connects directly to Henry Hub’s physical supply through an intrastate pipeline. The site accounts for almost half of CF’s gas consumption.
Payne said competition at Henry has not caused supply problems for CF, but is instead reflected in the growing number of locations trading at a discount compared to the flagship US hub.
Henry Hub “was our cheapest, or one of the [the] the cheapest sites in our system, and I would say other sites are now more cost effective, so I think that’s pretty interesting, ”Payne told the rally.
The United States is not the only place where natural gas prices are rebounding, however, as European and Asian prices are also recovering from last year’s lows.
An additional ton of fertilizer in the global market is charged based on international energy prices, Payne said. As a result, CF is “really well positioned to take advantage of the growing gap between Henry Hub and global energy prices,” she said.
For gas utilities, ensuring reliable and safe delivery of gas to customers regardless of the price is the priority, said Craig Colombo of Dominion Energy Inc., LDC’s strategic gas supply advisor for Ohio. Eastern and West Virginia.
Colombo’s job, he said, is to ensure Dominion’s natural gas storage levels in his region are near full by the end of October to meet surges in winter demand. He said the company expects no problems getting there this year.
While price increases must be passed on to the consumer, “the only good thing is that they have experienced a lot of low rates for many years as prices have come down,” Colombo said.
The sentiment was echoed by panelist Greg Morse, director of policy and planning for Vermont Gas.
Eric Schiffer, senior marketing strategist for Detroit-based DTE Gas Co., also offered a perspective, noting that current prices – although higher than last year – are still well below what had been. projected five to 10 years ago.
He also pointed out that gas prices in the winter of 2021 were the lowest since the 1990s, “so let’s take that with a grain of salt.”
DTE Gas Co. is a predominantly pure gas utility, of which approximately 90% of profits come from its regulated activities. It serves approximately 1.3 million natural gas customers in Michigan.
The five panel participants indicated that they use natural gas price indexes published by price reporting agencies such as NGI as part of their gas supply processes. Payne said CF trades in the physical and financial markets for natural gas. Colombo said his team at Dominion trades only physically in Ohio, but uses the physical and financial markets in West Virginia.
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The remaining panelists stated that they deal primarily or entirely in the physical market.
Four of the panelists said all or almost all of their gas purchases are tied to some type of natural gas price index, with a mix of monthly, seasonal and multi-year conditions.
Schiffer was the exception, explaining that approximately 75% of DTE gas purchases are made through fixed price contracts negotiated for a delivery term of up to two years, and that the remaining 25% are made for delivery. a month in advance and tied to some type of index.
All of the participants said daily gas purchases are rare in their roles.
The panelists all said their respective companies were successful in avoiding any material supply cuts or force majeure events during winter storm Uri in February, citing their various supplier portfolios and access to extensive natural gas storage.
When asked to rate their confidence in natural gas price indexes on a scale of one to five, with five being the highest level, the five panelists said they would give it a score of five.
Payne said the natural gas industry enjoys “an embarrassment of wealth in terms of price data,” explaining, “There are a lot of other products that don’t have as much visibility or frequency.” in terms of access to price movements.
Greening the gas mixture
Dave Janisse, chief gas supply officer for Enbridge Gas Inc., said the company does not expect to make major changes to its supply portfolio due to soaring prices.
Any change in this portfolio, he said, will instead be driven by environmental, social and governance (ESG) factors such as ensuring the supply of Responsible Origin Gas (RSG), renewable natural gas. (RNG) and hydrogen.
Ontario-based Enbridge Gas Inc. (a subsidiary of Enbridge Inc.) is the largest natural gas utility in North America in terms of shipment volume and is the owner / operator of the gas storage facility. 281 Bcf and over 7.5 Bcf / d Dawn natural gas Dawn-Parkway transmission system.
Morse, meanwhile, said Vermont Gas already had RSG and RNG in its wallet. While these products have not yet been released to utility customers, he said Vermont Gas uses them to offset its own greenhouse gas emissions.
The company will likely increasingly rely on virtual pipelines, i.e. trucks, to supply natural gas, RSG and RNG, he said.
CF also seeks to promote the development of the hydrogen economy through the low-carbon production of ammonia and hydrogen, Payne said.
“Ammonia is an essential catalyst for the storage and transport of hydrogen and can also be a clean fuel in its own right,” CF said in April when announcing a contract to build a 20 MW alkaline water electrolysis plant at the Donaldsonville complex.