Regulated Utilities Investing in Natural Gas Reserves and Production: Risk Sharing

摘要

Regulated utilities’ growing need to secure long-term natural gas at low prices, with low risk and low volatility has utility executives investigating whether owning reserves and production is a means to achieve these goals. Some regulators are supportive, others are not. Importantly, recent rulings disallowing these investments have stated that the associated risks were not properly shared among the various stakeholders and thus the proposals were not in the public’s interest. Unconventional gas, like shale gas, has drastically changed the upstream business and the risks associated with reserves ownership and production. Utility executives would do well to understand these changes before proposing a natural gas reserves acquisition program. This paper discusses the risks created by the unique attributes of unconventional gas and how these risks should be shared among the different stakeholders; namely, the customers of the utility, the shareholders of the utility and the E&P operating party with whom the utility will likely collaborate. The recommendations presented in this paper require an evolution of the standard E&P Operator / Non-Operator working interest party relationship and allow a sharing of risks and opportunities consistent with the needs and preference of all parties.