Long-term contracts not as desirable as many think
✍ Scribed by Willett, Robert E.
- Publisher
- John Wiley and Sons
- Year
- 2008
- Weight
- 249 KB
- Volume
- 7
- Category
- Article
- ISSN
- 0743-5665
No coin nor oath required. For personal study only.
✦ Synopsis
A growing number of small-to medium-sized companies that explore for andproduce natural gas have been desiring to get away fiom the spot market and into long-term contracts. But today's long-term contractdoes not offer the stability that a contract of twenty years ago might have: today, even in the longer term, prices are set monthly, using published averages.
Thus the stability that these companies want, and that the entities that finance the companies want, is something that exists only imperfectly. Longer-term contracts mean assured takes, but little else. With today's high loadfactors, even assured takes are to an extent something that the companies already have.
This situation has led the companies to believe afer study that long-term contracting today is not that great a deal, according to Clark C. Smith, president, Coastal Gas Marketing Company, a subsidiary of the Coastal Corporation of Houston.
Meaning of "Spot" Has Changed NG: How does a smallto medium-sued producer go about getting away from the spot market and into longerterm contracts? Smith: "Spot market" is getting to be kind of a fading term, Bob. People think of "spot" as just interruptible.
What's happened is, [for example at] our company in, like, 1987, we sold 95 percent of our gas into the spot market, or interruptible market, which is just generally thirtyday deals.
Back then, the interstate pipelines, they had to back up all the services, because they were still on the hook. So now as the pipelines are restructuring their service obligations,