SNL Reports on Julia Sullivan, John Goodgame Presentations at Akin Gump Energy Briefing

Presentations by Akin Gump energy regulation, markets and enforcement co-head Julia Sullivan and energy partner John Goodgame at Akin Gump’s June 4 “The Global Energy Industry: 2014 Mid-Year Energy Briefing” were reported by SNL.

“‘Abundant capital’ available for gas upgrades in volatile power markets,” in part, covers Sullivan’s presentation on the economic benefits that would result from new natural gas infrastructure in the Mid-Atlantic and Northeast states.  Noting the high electricity prices triggered by the record-cold winter in 2014 and the record-high gas prices and electricity consumption, she said, “If you had adequate gas infrastructure that allowed you to avoid these extreme price spikes, then the benefit of avoiding the price spike would pay for the gas infrastructure and more.”

She illustrated her point by citing the extreme difference between the wellhead price of gas in Pennsylvania with the citygate price of gas in New York City on a given day in January, noting “Those basis differentials can be driven by a lot of different factors, but one of them is gas transportation capacity. If you don't have enough gas transportation capacity to get from the wellhead to the burner tip, then you're going to have a supply constraint.”

Sullivan said that, due to inadequate transportation infrastructure, high prices prevailed despite an abundant natural gas supply and increased shale gas production, adding, “We've seen public and nonpublic investigations of market performance as a result of these events at the Federal Energy Regulatory Commission. It will probably be some time before we know all the different causes of these prices spikes.”

She discussed options to promote infrastructural improvement, including, among others, changes in ISO (independent system operator) and RTO (regional transmission organization) market rules to incentivize investment in gas pipeline capacity, on-site LNG storage and dual-fuel capability.

Goodgame, during his portion of the briefing, noted that the Interstate Natural Gas Association of America calculated that the United States, by 2035, will need to build $260 billion of gas infrastructure and said, “The good news is that there is not only available capital to build those projects, but there's abundant capital to build those projects. And that's good because there are a lot of gas pipeline-related infrastructure needs.”

He reported that master limited partnerships are providing most of the capital for new gas infrastructure construction, citing $49 billion in gross MLP debt and equity capital in 2013 and $24 billion to date in 2014.  Goodgame added, “That level of market interest and capital availability lends itself to project construction as well as asset acquisition. Whether you're talking about large MLPs funding projects directly, like [Kinder Morgan Energy Partners LP]'s Broad Run expansion or the Rockies Express reversal to flow east to west, or [Spectra Energy Corp]'s Texas Eastern Appalachia to market project … the availability of capital is certainly driving the infrastructure build-out necessary to meet our natural gas needs over the longer term.”