How natural gas is evolving to meet the Pennsylvania region’s rising energy needs Featured

9:01pm EDT July 31, 2011
How natural gas is evolving to meet the Pennsylvania region’s rising energy needs

Are we entering a golden age of gas? The International Energy Agency seems to think so, citing the environmental qualities, ease of use and competitive prices of natural gas in a recent report.

New technology is creating plant efficiencies and the evolution of shale harvesting is increasing supply and reducing transportation costs, says Terry Crupi, director of Natural Gas Marketing and Trading for PPL EnergyPlus.

“Natural gas is increasing its prominence in the U.S. energy landscape,” says Crupi. “And Pennsylvania executives have an added advantage, because the region offers a straightforward platform for choosing a provider and managing energy costs.”

Smart Business spoke with Crupi about the evolution of natural gas and what it means for Pennsylvania business.

How is natural gas evolving to meet rising energy demands?

Traditionally, natural gas served as a home-heating fuel and feedstock for the industrial manufacturing sector, which caused demand to soar during colder months in northern regions of the country and highly industrialized cities. By the early 2000s, there was a dramatic surge in the construction of gas-fired power generation facilities, many of which use modern, fuel-efficient, combined-cycle technology. As a result, power grids rely on gas-fired power plants nearly as much as traditional baseload generation facilities fueled by nuclear fission and coal.

This dramatic increase in demand for natural gas has altered consumption and changed the way gas is used by region and season. Although summer demand used to be driven by the need to fill storage caverns for peak winter months, peak flow conditions along the pipeline now occur in summer as well as winter, as gas-fired power plants are used to meet rising summer electricity demands. This has greatly increased the importance of natural gas in our country’s overall energy picture, and lower prices are causing many customers to switch to natural gas. Also, the momentum toward natural-gas-powered vehicles offers tremendous potential for gas to increase its prominence in the U.S. energy landscape.

How do Pennsylvania businesses purchase natural gas?

The structure of the region’s natural gas market has been in place for several decades and provides customers with the opportunity to choose a competitive gas supplier and manage their energy costs. The regulated side of the market includes pipelines and local distribution companies that transport natural gas to end-users, but their rates and returns are controlled by state or federal agencies.

Customers of all shapes and sizes can optimize savings by purchasing natural gas from unregulated companies, because they aren’t required to purchase gas from a local utility. Gas suppliers typically collaborate with customers to develop a flexible pricing structure that meets their needs and optimizes current market conditions.

What should customers look for when choosing a natural gas supplier?

Because the composition of natural gas doesn’t vary, customers should select a supplier based on other characteristics, including:

  • License. Suppliers should be licensed by the state regulatory commission.
  • Financial stability. Assess a supplier’s tenure, history and financial health, as well as the financial condition of its parent, because it needs excellent credit to procure large quantities of gas at favorable prices in the wholesale market.
  • Customer service. Ask to see a sample invoice and review the supplier’s responsiveness to orders for triggering or fixing prices and process for issuing confirmations. Will the supplier help you set hedging strategies? Who will be servicing your account? Remember, the salesperson may not be your contact once you’re a customer.
  • A straightforward contract. Make sure there are no hidden renewal options in favor of the supplier and that any index pricing is appropriate and utilizes standard industry publications. The tone of the contract is indicative of a supplier’s approach, so take note if it seems one-sided.

How can natural gas consumers protect themselves from pricing volatility?

Natural gas is an actively traded and highly volatile commodity, which helps customers lock in favorable prices, but that also makes it difficult to craft an effective risk mitigation strategy. Some customers set price targets that align with corporate budgetary objectives, while others study the market and determine pricing points to capitalize on dips in the market. Still others are simply content to receive market-based pricing by purchasing gas at index-related prices. Customers can employ options to establish some limits on gas price floors and ceilings, but the best practice is to set a strategy that aligns with your risk appetite and execute it well.

How will Marcellus Shale natural gas production impact Pennsylvania energy?

Pennsylvania gas consumers are already seeing benefits from the Marcellus Shale, because the increased supply and proximity to the market is lowering transportation costs and overall natural gas prices. In terms of the total energy picture, it’s also having an effect on electricity markets because plentiful natural gas, coupled with increasing costs of coal, is causing many older coal-fired plants to retire in favor of gas-fired generation. In fact, Pennsylvania is becoming a prominent natural gas producing state, largely due to the Marcellus Shale.

PPL EnergyPlus, LLC is an unregulated subsidiary of PPL Corp. PPL EnergyPlus is not the same company as PPL Electric Utilities. The prices of PPL EnergyPlus are not regulated by the Pennsylvania Public Utility Commission. You do not have to buy PPL EnergyPlus electricity or other products in order to receive the same quality regulated services from PPL Electric Utilities.

Terry Crupi is director of Natural Gas Marketing and Trading for PPL EnergyPlus, a competitive gas supplier serving industrial and commercial customers in Pennsylvania, New Jersey, Maryland and Delaware. Reach him for wholesale and retail inquiries at PPLRetailGas@pplweb.com or (610) 774-2310.