Gas supply for independent power projects: Drilling programs and reserve acquisitions. [Independent Power Generation]

Journal Article · Thu Oct 11 04:00:00 EDT 1990 · Public Utilities Fortnightly; (United States)

OSTI ID:5248241

Lambert, J D ^[1]; Walker, R K

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1. Kirkpatrick and Lockhart, Washington, DC (USA)

Developers of gas-fired independent power projects, although drawn to gas as the fuel of choice for economic and environmental reasons, are finding the problem of cost-effective gas supply to be intractable. By one estimate, there are $6 billion worth of gas-fired projects languishing in the planning stage for want of long-term gas supply that is acceptable to project lenders. Worse still, as the authors are aware, some currently operating gas-fired projects lack such a supply, thus forcing the developer to rely on the spot market for gas as an interim (and unsatisfactory) solution. Although spot market prices in the deregulated natural gas industry have remained relatively low over several years, long-term gas supply has become problematic, particularly for power projects whose economics typically require an assured supply at a determined price over a multiyear period. In short, while there is an increasing demand for gas as a preferred source of fuel supply for power projects, there are discontinuities in the approaches taken to contracting for that supply by producers and developers. These concern primarily allocation of the risk of commodity-driven price increases during the term of the fuel supply contract. Without a means of accommodating price-related risk, the parties will inevitably find themselves at an impasse in contract negotiations. If there is a barrier to the independent power generation industry's vertical integration into gas production, it is the fundamental insularity of the two industries. As they have discovered, it may be indispensable for gas producers and power developers to employ intermediaries familiar with both industries in order to consummate appropriate joint-venture drilling programs and reserve acquisitions. Given the economic consequences of doing so successfully, however, they believe such programs and acquisitions may become an integral part of independent power developers' business strategy in the 1990s and beyond.

• OSTI ID: 5248241
• Journal Information: Public Utilities Fortnightly; (United States), Journal Name: Public Utilities Fortnightly; (United States) Vol. 126:8; ISSN 0033-3808; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
030600* -- Natural Gas-- Economic
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
294003 -- Energy Planning & Policy-- Natural Gas
296000 -- Energy Planning & Policy-- Electric Power
DRILLING
ELECTRIC POWER INDUSTRY
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
GEOLOGIC DEPOSITS
INDUSTRY
JOINT VENTURES
MINERAL RESOURCES
NATURAL GAS
NATURAL GAS DEPOSITS
NATURAL GAS INDUSTRY
POWER GENERATION
RESOURCES
SUPPLY DISRUPTION
WELL DRILLING