The National Public Gas Agency, on behalf of several communities it supplies wholesale natural gas to, recently joined a natural gas purchasing pool for the benefit of securing reliable, economical and long-term natural gas supply for interested member communities.
Public Gas Partners (PGP) is a joint-action, non-profit corporation based in Georgia. It formed in 2003 to assist joint action agencies and large public utilities in securing long-term gas supplies. It is solely controlled by participating municipal utilities. PGP acquires and manages natural gas reserves for different “pools” of communities that join the organization.
NPGA is a member of PGP’s gas purchasing Pool No. 3, which began signing up communities in 2009. So far, eight member communities of NPGA are participating in the pool. The participating communities are: Alma, Central City, Lyons, Pender, Wisner, Stuart, Superior in Nebraska and Belleville, Kan.
There are more than 150 communities participating overall in Pool No. 3 so far, said John Harms, NPGA director of wholesale gas operations.
Through PGP, communities benefit from economies of scale by having a large number of public utilities participate to share costs and recover value in the form of more economical natural gas.
Other strategies to create value for participating communities include:
• Capturing share of producer’s economic value through acquiring proven natural gas reserves;
• Hedging to protect economic profits;
• Utilizing tax-exempt financing; and
• Positioning assets for continued development of gas reserves.
Because PGP serves solely municipal utilities, Harms said it takes a conservative approach in acquiring and managing gas reserves.
The day-to-day operation of PGP is performed under contract by the Municipal Gas Authority of Georgia.
Harms represents NPGA on behalf of its participating communities on the PGP board of directors and on the operating committee for Pool No. 3.
When signing up to be a pool participant, each community designates a natural gas volume it wants to receive. Currently, the pool’s volume is more than 29,000 Mmbtu/day. For NPGA communities, Harms recommended designating no more than 50 percent of their total volume to come from the PGP pool.
PGP participation differs from signing long-term gas contracts in that participating communities are producers, which can provide economic value, Harms said.
“There’s future price uncertainty either way – whether you buy gas on the market or you own reserves,” said Harms, “if prices go up and you own reserves, that’s good for your reserve investment.
But the other side of that – for your gas contracting needs, if prices go up, then it’s detrimental. So the risks tend to offset. Essentially owning reserves is a placeholder – you have a little bit of a long-term price hedge in place.”
The goal of owning reserves, Harms said, is to pass on any excess profits that might result from ownership to participating communities.
One of the potential risks in owning reserves is a long-term decline in prices, Harms said. He said PGP plans to minimize this risk through aggressive hedging strategies.
Also minimizing the risks with reserve ownership is PGP’s conservative approach in owning proven, established natural gas fields combined with improved science and technology now available to extract the gas.
“In some of the new natural gas production today, a lot of fields have been known about for a long time, it’s just been that price and technology have now come together to make that gas economically feasible to produce.”
Harms said participating NPGA members see value in joining PGP in the form of more stable prices and ultimately lower natural gas costs.
Communities may still be able to enroll in this program by contacting Harms at (800) 234-2595 or jharms@nmppenergy.org.