Guest opinion: NorthWestern hedging against energy price volatility

2014-03-12T00:00:00Z Guest opinion: NorthWestern hedging against energy price volatilityBy BOB ROWE The Billings Gazette
March 12, 2014 12:00 am  • 

When we look back on the winter of 2013-14, we won’t remember the average temperatures. We’ll be talking about sustained periods of bitter cold in December, January, February, and even into March.

NorthWestern Energy’s Montana natural gas system has been a tremendous asset for hundreds of thousands of Montanans this winter. At the heart of that system are the hundreds of dedicated professionals who operate and maintain it – no matter how fierce the blizzard or how cold the night - from Havre, to Cut Bank, to Dry Creek, to Deer Lodge, to Butte and to every community in which we have the honor to provide natural gas service. Even in cities like Billings and Great Falls, where NorthWestern isn’t the gas company, we transport all or some of the gas for the local provider.

NorthWestern’s Montana integrated gas system includes 5,000 miles of local gas distribution, about 20 billion cubic feet of underground gas storage, and 2,000 miles of gas transmission that runs down Montana’s spine, and connects all of the communities we serve. So far this winter, we have moved 23 billion cubic feet of gas over our transmission system and taken 12 billion cubic feet out of our storage fields.

The cold and record consumption of natural gas this winter has led to dramatic price volatility in a national natural-gas market that in recent years has seen low, stable prices.

At NorthWestern Energy, we’ve seen this volatility up close. In a three-day span in early February, the contracted price we paid for Alberta natural gas delivered to our system in north central Montana registered $8.38 per dekatherm on Wednesday, bounced to $12.75 a dekatherm on Thursday and slipped to $7.37 per dekatherm by Friday.

Owning gas wells

But thanks to the series of purchases of natural gas wells in north central Montana over the past several years, NorthWestern-owned natural gas production currently costs customers less than $4 per dekatherm - significantly below the current market price and way below the peak prices.

Just four years ago, NorthWestern owned no gas reserves and relied entirely on market purchases and our natural gas storage system to meet 100 percent of our gas needs. After finishing the most recent acquisition late in 2013, our more than 1,100 producing gas wells and related gathering-storage systems provide about one-third of the natural gas reserves we need to serve our Montana customers. The reserves we have acquired have been traditional gas assets, with long lives and relatively stable depletion rates.

Buying hydro assets

The value of owning resources extends beyond natural gas. It’s one of the drivers behind our proposed acquisition of the hydroelectric dams and reservoirs now owned by PPL Montana. Owning dams that use a cost-free fuel, water, to generate stable-priced electricity for the sole use of our Montana customers makes fundamental sense.

Buying the hydro assets will allow us to lock in a portion of our cost of electricity, reduce our customers’ exposure to the gyrations of the short-term energy market and reduce risks such as future environmental regulations. Liking buying natural gas wells, it’s a plan that will pay dividends not just in the depth of winter, but year-round for decades to come.

Bob Rowe is president and CEO of NorthWestern Energy.

Copyright 2015 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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