Enstar expects higher prices in 2013

Petroleum NewsNovember 24, 2012 

Enstar Natural Gas Co. expects its natural gas to cost more in the coming year.

The natural gas distribution company is planning to increase its quarterly Gas Cost Adjustment to about $7.24 per thousand cubic feet, up some $1.08 per mcf from the rate in fourth quarter of 2012 and up around 53 cents from the rate in the first quarter of 2012.

With the proposed increase, most Enstar customers large and small would see an estimated 13 percent increase over the current fourth quarter rates on an annualized basis and a 6 percent increase over the first quarter rates from 2012, according to Enstar.

The change "reflects the anticipated need for increased seasonal gas purchases and withdrawals from storage in the first quarter due to winter weather," the company wrote.

The Gas Cost Adjustment is a weighted average of the prices and volumes for all the contracts Enstar uses to maintain its gas supply. In addition to increased winter demand, the proposed increase reflects the varied pricing mechanisms in various contracts. While Enstar adjusts its gas costs quarterly, the start of the year can often yield a larger change than other quarters. The pricing provisions of two Enstar contracts adjust annually, while the others are indexed quarterly, and therefore also change with the start of the year.

For 2013, the Marathon APL-4 contract would drop 4 percent to about $7.56 per mcf, down from $7.84 per mcf in 2012. The APL-4 contract is tied to the average daily price of light sweet crude oil futures from the third quarter of the year prior to the adjustment. Enstar expects to buy 1.958 billion cubic feet of gas from the contract during the quarter.

The Hilcorp contract, the second to be indexed annually, would also drop in the coming year, to about $4.12 per mcf. The contract is priced using the average daily price of Henry Hub Natural Gas Futures traded on the New York Mercantile Exchange for a three-year period ending in the third quarter of the year prior to the adjustment. Enstar expects to purchase 6.462 billion cubic feet of gas under the contract during the quarter.

The Anchor Point Energy contract would increase quarter over quarter to about $6.96 per mcf in the first quarter of 2013. The contract is priced using Nymex Natural Gas Futures. This quarter, the actual average price is below a pre-determined floor price set in the agreement and therefore the actual sales price would essentially double the Nymex average. Enstar expects to purchase some 465 million cubic feet during the quarter.

Like the Anchor Point contract, on which it was modeled, the Buccaneer Alaska contract also would also increase quarter over quarter with the start of the year, to about $6.52 per mcf. The price is also nearly double the index value, because of a floor established in the contract. Enstar expects to purchase 450 million cubic feet during the quarter.

This coming year, Enstar will lose Marathon APL-8, a form supply contract that ended in 2012. Enstar told regulators it has dropped the contract from its roster for 2013.

Combined, those base supplies would cost slightly more than $5 per mcf in the quarter.

In addition to those big contracts, Enstar expects to purchase some 900 million cubic feet during the quarter at $9.50 per mcf from APL-9, a short-term agreement with Marathon.

Even with those contracts, Enstar expects demand to exceed contracted supplies by about 710 million cubic feet during the quarter. To fill the gap, Enstar would use the competitive bid system it used to purchase additional supplies in 2011 and 2012.

Enstar has eight options for filling its peak needs on the coldest days of the year. The producers of those non-firm supplies are Hilcorp, Anchor Point Energy, ConocoPhillips, Buccaneer, Aurora Gas, Cook Inlet Energy, Marathon and Municipal Light & Power.

The contracts all contain different mechanisms for pricing these "undesignated" supplies, but Enstar expects the average cost of all peak supplies to come to around $13 per mcf.

"Enstar is currently in discussions with multiple suppliers and may enter into short-term gas supply arrangements or additional base supply agreements that could supply all or a portion of the currently forecasted Undesignated Supply volumes," the company told regulators in its filings. With enough volumes, the contract could help reduce the amount of gas the company would need from competitive bidding or from storage withdrawals.

Currently, Enstar expects to pull some 2.45 billion cubic feet from storage during the quarter. Those supplies would cost $10.80 per mcf, on average, making the storage withdrawals almost as expensive a line item for Enstar as its main contract with Hilcorp.

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