Cabot pens 10-year nat gas power deal

OREANDA-NEWS. July 07, 2016. Cabot Oil & Gas will provide natural gas to a new gas-fired power plant in Pennsylvania under a 10-year agreement.

Cabot said it had executed a 10-year sales agreement with Invenergy for fuel for its 1,500MW Lackawanna Energy Center power plant in Lackawanna county. South Jersey Industries, an energy holding company, will be the counterparty to acquire gas from Cabot and market it to Invenergy.

The deal between Cabot and South Jersey Industries is another example of utilities trying to invest in gas infrastructure and supply to secure dependable access and long-term prices unavailable in financial markets.

Last year Florida Power & Light purchased gas reserves in Oklahoma through an agreement intended to save customers money and guard against gas price volatility. That decision was approved by state regulators but in May 2016 was blocked by the state Supreme Court, which found that the investment did not qualify as a physical hedge and was not eligible for cost recovery.

Pennsylvania is a deregulated state, so power plant operators there are not subject to the same level of regulatory oversight as Florida.

Duke Energy has purchased a stake in Spectra Energy's \\$3bn Sabal Trail gas line and has an interest in Dominion's \\$5bn Atlantic Coast pipeline.

The Cabot agreement represents a more sensible way of investing in gas supplies without becoming a partner in gas field development, said David Pursell, an analyst with the energy investment bank Tudor Pickering Holt.

Historically these types of deals came about from "more of a gas-pull than a gas-push," meaning that demand for gas was usually the impetus for such an agreement, RBC analyst Scott Hanold said. But as natural gas output ramps up in Appalachia there is more push from producers to get their gas to a market, he said.

The Lackawanna Energy Center is expected to partially come on line in mid-2018, with full-scale operations by the end of 2018. At maximum capacity the facility will burn 232mn cf/d (7mn m?/d).

Cabot also recently signed a deal to provide gas to the 650MW Caithness Moxie Freedom natural gas power plant in Luzerne county, Pennsylvania. With both deals, Cabot will be providing more than 386mn cf/d for power generation near its operations footprint.

Low natural gas prices and new pipeline infrastructure delays have pressured independent producers in the Marcellus and Utica shale to lower spending and come up with creative ways to get their gas to a market. Cabot executives said in April that because of regulatory obstacles on the Constitution natural gas pipeline, in which it is a partner, its continued to access markets by other means, including long-term sales.

The increased takeway from Cabot's sales agreement should add some support to gas prices in Appalachia, but it is unlikely to be enough to backfill pipelines facing delays there, analysis firm Guggenheim Partners said this week. The firm noted that 75pc of incremental takeaway there is currently facing delays.

"Northeast isolation will continue to weigh on the stock, as pipeline politics continue to be a strong headwind to growth," the firm said.

Despite the obstacles, Cabot produced more than 1.6 Bcf/d in the Marcellus shale during the first quarter, up by 10pc from the prior quarter.