Liquefied Natural Gas to Begin Shipping in 2015
Sabine Liquefaction, a subsidary of Cheniere Energy Partners, L.P, has entered into a liqufied natural gas (LNG) sale and purchase agreement with their sixth customer, Centrica. Centrica serves over 11 million households in Britain. The agreement allows Centrica to purchase 91,250,000 MMBtu of LNG volumes per year for twenty years.
Sabine Liquefaction is developing six liquefaction trains and has already begun construction on the first two. They expect to start construction on the third and fourth trains in the first half of 2013 and the permitting process and preliminary engineering have been initiated for the fifth and sixth trains. After all six trains are completed, the Sabine Pass will be able to ship out approximately 4 billion cubic feet of gas per day.
A liquefaction train is what an LNG plant uses to compress natural gas into a liquefied state. The gas is first refined to remove any impurities and is then cooled down to approximately -160 degrees celcius for shipping.
Cheniere isn’t the only US company to have signed long-term agreements with major LNG buyers and recent indications point to several more long-term contracts being announced in the near future. What was just a possibility last year has become a reality in 2013.
As natural gas becomes a world commodity, supply will decrease for the United States as demand increases in places like China and Japan where costs are significantly higher. This could provide upward pressure on domestic gas rates and once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.
Below is a snapshot of current global natural gas prices. Courtesy of FERC.Read More
Panama Canal Expansion Will Help Provide a World Market for US Natural Gas
For nearly 100 years, the Panama Canal has provided a faster and safer path for goods to be shipped between Asia and North America. However, with ships growing wider and deeper to carry more goods per trip, the Canal has been forced to expand. Six years ago, Panama started a $5.25 Billion dollar expansion so that vessels up to three times larger can carry goods along the 48-mile route.
Meanwhile in the United States, technological advances in the drilling industry have allowed us to tap into some of the largest natural gas reserves in the world. Though natural gas prices in the United States have steadily declined since 2008, global demand and global prices are rising. Previously a local commodity, natural gas is now being transformed into a liquid state, becoming Liquefied Natural Gas (LNG), making it easier to be shipped overseas and sold at higher prices. Therefore, shale gas in the US combined with an expanded Panama Canal provides an opportunity for natural gas to enter the global marketplace. This could mean pricing mirroring the oil market, thus eliminating the current low price advantage of the domestic stock.
Jorge Luis Quijano, the Panama Canal Administrator, promises that the expanded passage through Panama will create new markets to exploit bigger ships and deeper ports (Washington Post). The new locks will help accommodate another 2,600 ships, oil tankers and LNG carries. Previously, only 10% of the world’s 369 LNG-carrying vessels could pass the canal. However, the expansion will accommodate up to 80% of the fleet. Expected completion is June 2015.
For more information on the opportunities the expansion can bring please visit this link.
Two cargo ships entering Panama Canal’s Gatun Locks. Ships are raised up to 87 feet to pass through the different lanes of the canal. Image courtesy of PRWeb.Read More
Transmission Cost Recovery Factor Charge Increase
The Transmission Cost Recovery Factor or TCRF is a charge found on electricity customer’s bills in the Oncor territory. Customers may notice that this charge fluctuates around 2 times a year. Depending on your meter’s rate class, the charge is calculated per kWh or per kW. Larger customers will always find their charge is based per kW. Click for detailed information on the TCRF.
In an open meeting with Oncor, approximate cost increases were detailed for the charge. In addition to the normal twice-a-year updates, the charge is expected to increase 2/10 of a penny per kWh by the end of 2013 and an additional 2/10 of a penny per kWh by the end of 2014. That totals nearly half a penny increase per kWh beginning 2015.
Below are example calculations from a customer with 363 kW demand and 112,800 kWh usage:
Total Current TCRF Charge: $756.70, which comes out to be around $.0067/kWh
With the 2/10 penny increase by the end of 2013, the total TCRF Charge would be: $981.36, which comes out to $0.0087/kWh
With the 2/10 penny increase by the end of 2014, the total TCRF Charge would be: $1,206.96, which comes out to $0.0107/kWh
The total overall increase from now until 2015 is $449.26 or a 37% increase for the particular example above. Exact percentages will depend on your load particulars.Read More
Transportation Charges with Atmos Increasing
If you’re a transportation customer with Atmos, you may have noticed an increase on your latest bill. The monthly charge has increased from $450 to $600. While the customer charge has increased, the cost per MMBtu has decreased:
First 1,500 $0.2750 $0.2473
Next 3,500 $0.2015 $0.1812
All Additional $0.0433 $0.0389
If you use from 1 to 1,500 MMBtu each month, you will see a cost increase anywhere from 13% to 33% on your total bill.
If you use from 1,501 to 5,000 MMBtu each month, you will see a cost increase anywhere from 2% to 13%.
If you use 5,001 MMBtu and above, you will see a cost increase of approximately 2%. It is not until a customer uses 14,000 MMBtu per month that a cost decrease will be seen. See the below for a further breakdown:
10,000 MMBtu per Month: 1% increase
12,000 MMBtu per Month: No change
14,000 MMBtu per Month: 0.1% decrease
15,000 MMBtu per Month: 0.3% decrease
If you would like to see what your approximate charges will look like in 2013, contact RPM today for an estimation using your company’s historical usage from the past year.Read More
Excessive Natural Gas Supply Spurring Innovation in the US
Total overall energy production in the United States is expected to surpass Saudi Arabia by 2020 due to America’s vast natural gas resources. With the surplus supply comes an emergence of new innovations. As new uses for the excessive and inexpensive supply become operational, the result will be upward price pressure on natural gas and, in turn, electricity.
The boom in shale drilling has significantly reduced the cost of natural gas in the United States and has encouraged many energy/chemical companies, like Sasol & Cheniere Energy, to build plants.
On December 3, 2012, Sasol, a South African energy company, made an announcement that it plans to build a fuel plant in Louisiana with ability to convert natural gas into diesel and jet fuel, as well as other products.
The plant will be similar to smaller plants located in South Africa and Qatar and cost anywhere from 11 to 14 billion dollars to build. Designed to produce 96,000 barrels of fuel a day using gas-to-liquids (G.T.L.) technology, this facility will be the first of its kind in America.
The photograph above is one of Sasol’s gas-to-liquids facilities. Courtesy of EnergeticCity.
David Constable, Chief Executive with Sasol, explained that adding the exclusive G.T.L. technology in the United States’ energy mix will advance the country’s energy independence. More information on the Sasol plant announcement can be found at: http://goo.gl/kVYbQ.
While the Sasol plant’s success depends on natural gas prices remaining lower than other fuel sources, Cheniere Energy’s exporting plant should succeed depending on overseas natural gas demand.
Recently, natural gas drilling has slowed due to the decrease in prices. However, plans for the US to begin exporting the fuel to Asian countries, where natural gas trades three-to-four times American prices, could encourage drilling to rise again. With natural gas eventually being sold on the global market to the highest bidder, it should provide upward pressure on domestic gas rates. Once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.
The U.S. Energy Department is considering approving 15 more liquefied natural gas (LNG) terminals with a total export capacity of 26.5 billion cubic feet a day.
Overall, in an analysis performed by NERA Economic Consulting at the request of the U.S. Energy Department, the benefits of exporting natural gas far outweigh the concerns. Exporting has the potential to bring in near $32 billion in annual revenue and thousands of new American jobs.
Exporting almost one-third of the total US consumption and converting a portion of the rest to liquid fuel will change natural gas prices and our total energy portfolio forever. How much will this effect the energy cost to the end user? That remains to be seen.Read More
Some Good News for the Lack of Generation in Texas
Panda Power Funds, an organization built to develop and invest in natural gas power generation and solar energy projects, announced Tuesday, September 18 it would immediately begin building a power plant in Sherman, Texas. The 758-megawatt (MW) plant will be fueled by natural gas.
Panda began construction of a similar 1,000 MW plant in Temple, Texas in July. Bill Pentak, spokesman for Panda, says both plants will be producing electricity by the end of 2014 and once operational, the Sherman power plant will supply power to the needs of about 750,000 homes.
The Texas Electric Reliability Council of Texas (ERCOT) continuously warns that Texas will face electricity shortages unless new generating plants are built or consumers cut back on usage. The announcement of these plants comes at a good time for the ERCOT grid, which faces declining reserve margins each day.
The Texas Public Utility Commission (PUCT) voted to increase the system wide offer cap in June from $3,000 to $4,500 per megawatt hour (MWH). In lay perspective, that equates to $4.50 per kilowatt hour (kWh) during high peak demand periods. Further increases to the price cap are pending with the anticipated goal of spurring investment into new generation facilities.
More generation would lead to an increased reserve margin and fewer struggles to meet demand during extreme weather situations coupled with Texas’s continuous population growth. However, increases to the price cap will also mean higher prices for consumers.
Please see the chart below for the coming years’ forecasted reserve margin (courtesy of ERCOT).
The red dashed line represents the ERCOT grid’s projected reserve margin over the next 10 years. Note that near the middle of 2014, the reserve margin will not be met and after 2015, the margin steadily decreases again.Read More
Coal plants in Texas, U.S. no longer under pressure to comply with strict EPA standards
The U.S. court of Appeals overturned the Environmental Protection Agency’s cross-state air pollution rule (CSAPR). This standard would have required 23 states, including Texas, to decrease sulfur dioxide and nitrogen oxide emissions.
Judge Brett Kavanaugh’s justification for ruling against the standard states:
EPA has used the good neighbor provision to impose massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text. Whatever its merits as a policy matter, EPA’s Transport Rule violates the statute. Second, the Clean Air Act affords States the initial opportunity to implement reductions required by EPA under the good neighbor provision. But here, when EPA quantified States’ good neighbor obligations, it did not allow the States the initial opportunity to implement the required reductions with respect to sources within their borders. Instead, EPA quantified States’ good neighbor obligations and simultaneously set forth EPA-designed Federal Implementation Plans, or FIPs, to implement those obligations at the State level. By doing so, EPA departed from its consistent prior approach to implementing the good neighbor provision and violated the Act.
This is a victory for coal plants across Texas and the United States – most will avoid shut down and/or installation of pricey equipment to comply with the EPA’s rules. As you can see in the chart above, almost half of US electricity needs are fueled by coal-fired power plants.Read More
PUCT Raises System-Wide Offer Cap to $4,500/mWh, Immediately Affecting Electricity Prices
The Public Utility Commission announced it’s decision to raise the system-wide offer cap to from $3,000 to $4,500/mWh today. Although not effective until August 1, this ruling immediately affected electricity prices. Prices have shot up and any unsigned contracts are being pulled.
What does this mean for the consumer?
Index Consumers – Even though prices spike up to the cap only a few hours each year, consumers riding an index will be most affected by this cap increase due to price risk exposure. It is suggested at this time that a customer with an index-priced product convert to a fixed-price product.
Fixed Price Consumer – There is speculation around whether or not a retail electric provider (REP) can pass through any cost increases associated with the rate cap by means of the “Change in Law” provision in contracts. Due to each REP’s unique way of hedging, amounts passed through would vary – especially if a REP doesn’t hedge fixed-price contracts appropriately or even at all.
Background on the PUCT’s Decision to Raise Market Caps:
Discussions on raising the cap began when the Electric Reliability Council of Texas (ERCOT) announced decreasing reserve margins. A reserve margin is the amount of available power above the capacity needed to meet normal peak demand levels. ERCOT’s target reserve margin, used to ensure stable grid operation, is set at 13.75% and actual reserve margins are likely to fall below the target by 2014.
The anticipated goal for the cap rate increase is to spur construction of new generation facilities. More generation would lead to an increased reserve margin, resulting in fewer struggles to meet demand during extreme weather situations coupled with Texas’s continuous population growth.
Not only has the PUCT passed the cap increase to $4,500 – They have launched another proposal to set cap rates in future years: $5,000/mWh before summer 2013; $7,000/mWh in 2014; and $9,000/mWh in 2015.
We will keep you updated on any future increases.
California’s Cap and Trade Program Launching January 1
The California Air Resources Board (CARB) is in the end stages of assembling a greenhouse gas cap and trade program. The program officially launches on January 1, 2013 and will cover major sources of greenhouse gas emissions in the State.
The goal of this program is to fight climate change and reduce greenhouse gas emissions to 1990 levels by the year 2020 eventually achieving an 80% reduction from the 1990 level s by 2050.
California, the first and only state to have created a cap and trade system, has now been joined by Quebec.
“Linking with Quebec is a significant advance in California’s efforts to fight climate change and steer our economy toward a clean energy future,” stated Mary Nichols, chairwoman of the CARB.
CARB is developing California’s carbon market and is scheduled to vote on rules this month. If approved, the first linked auction for Quebec and California companies will take place in November.
Cap and Trade Explained
Emissions caps are established by collecting emissions data from large industries. Business are then grouped and assigned an average emissions benchmark. Businesses are allowed to emit 90% of the benchmark in the first year and companies that operate below the cap may sell their excess allowance on the ‘market’. Companies with emissions above the benchmark may purchase these credits.
The cap and trade is a great way to reward companies for reducing their greenhouse gas emissions but will hurt those using fossil fuels, especially those using coal – the dirtiest fuel. The ultimate goal of the program is to eliminate the reliance on any fossil fuels for energy and incent renewable energy growth.
Obama proposed a nationwide cap and trade program in 2009 which didn’t pass. West Virginia and Indiana– states using coal for more than 90% of electricity generation – are safe from any adjustments for now.
Assuming a nationwide program is eventually put in place, any region heavily relying on fossil fuels for their electricity needs will absolutely see an increase in their electricity prices. To comply, plants will need to purchase emissions credits – costs which would be passed on to the consumers.
Decommissioning fossil fuel-fired power plants and preventing any new construction may be the best way to reduce the nation’s carbon footprint, but will definitely affect the end users. Picture courtesy of Legal Planet (legalplanet.wordpress.com)
WHOLESALE HEAT RATES PULL BACK ON ANNOUNCEMENT OF A MILD SUMMER; AFFECTING ELECTRICITY RATES IN TEXAS
The main culprit behind any recent electricity price increase is a wholesale term called “heat rates.” Heat rates are used in the energy industry to determine how efficiently a generator uses heat energy. Generally, natural gas prices and heat rates have an inverse relationship. If natural gas goes up, heat rates go down and vice versa.
The Cost of Electricity = Natural Gas x Heat Rate
Last summer gas prices were around $4 and electricity was around $50/mWh (5 cents/kWh). This means heat rates were at about $12.50. Although gas prices remained steady, during the 4 days in August when demand and threats for blackouts were high, the heat rate was about $91.25; making electricity about 36.5 cents a kWh.
Natural gas prices have stayed relatively stable and are expected to stay that way. However, heat rates began increasing due to tighter reserve margins and the price of electricity was reflecting this fact (Read More). Electricity prices were running a few mils (1 mil – $0.001) higher per kWh in March, April and early May. Refer to the chart below to see the price climb beginning in March and the pullback in mid-May.
Above chart courtesy of MP2 Energy.
Due to mild weather forecasts for this summer, we have seen a pullback in heat rate prices which is bringing electricity prices back down. Also attributing to this price decrease is the announcement of a 500MW generation expansion coming online as soon as next summer. Now is a good time to lock in any electricity contracts before heat rates begin climbing back up on tight reserves or extreme weather.Read More