Spectra Energy Builds a Business

Transcription

1 » Introducing Spectra Energy Builds a Business CEO Fowler on Challenges Ahead By Martin Rosenberg Natural gas once again looms as an important fuel for electricity generation, given a spate of cancellations of proposed coal-burning generation plants. So says Fred Fowler, the president and chief executive of Spectra Energy. Spectra was formed a year ago when the leaders of Duke Energy decided to shed natural gas properties picked up several years earlier when different growth strategies reigned. Both companies have said that they are poised to profit from becoming pure plays in natural gas and electricity. As for Spectra s approach to its natural gas business, Fowler says, the operative word is building. EnergyBiz recently interviewed Fowler. Asked if he is enjoying the challenges before him, the 62-year-old executive said, I m having a blast. His comments, edited for length and style, follow. ENERGYBIZ Spectra Energy is investing $4 billion in its core businesses between 2007 and Nationally, is there enough being invested in natural gas infrastructure? FOWLER It s progressing pretty nicely. We ve been through 20 pretty tough years in the engineering and construction business. They downsized a lot, and suddenly we re in this huge building phase. We have seen a real tightness in the supply of labor. ENERGYBIZ You recently announced plans for $1.5 billion in capital expenditures in What kind of work are you engaged in? FOWLER Some are organic growth projects that are expansion projects around our existing asset base. We also have projects that are new assets that we re going to build. The big investment today really is in our gas transmission business. ENERGYBIZ How good is the natural gas infrastructure in the United States? Is there enough transmission? Is there enough processing? Is there enough storage? FOWLER We have new, nonconventional gas reserves that have been discovered in recent years. As a result of higher gas prices here, it made possible going after some reserves that made no sense at $2 and $3 per million cubic feet. ENERGYBIZ Where are they? FOWLER The big one is in the Rockies. In addition, they are in north Texas, Oklahoma and Arkansas. They have turned out to be much bigger than anybody thought they were going to be. What s driving a lot of the infrastructure is getting that gas either connected into the national grid or getting it relocated into the better pricing points in the national grid. The markets that we serve, the East Coast, want access to the Rockies gas. The last decade has seen a big loss of reserves on the continental shelf of the Gulf Coast. We ve probably lost somewhere around 10 to 11 billion cubic feet a day of production out of there. The gas in the Rockies has pretty much replaced that. ENERGYBIZ When the Rockies Express pipeline is complete and gas in the Rockies can be tapped, do you see natural gas prices moderating a bit? FOWLER Longer term yes. But what is really critical to getting gas prices to continue to be competitive is getting more liquefied natural gas coming into this country. I don t think the domestic gas producers in the United States and Canada are going to be able to keep up with the demand and growth in North America. ENERGYBIZ Electricity generators favored natural gas, then coal. Will natural gas once again be favored by power generators? FOWLER They favor it right now. A lot of gas-fired generation got built in the 1990s and early 2000s. It got overbuilt. So you ve got this existing base just sitting there, with underutilized gas facilities particularly in markets like the Northeast and the Southeast. For baseload plants, clearly coal and nuclear are probably the best way to go. But for peaking and intermediate load, gas is really much more economical because the plants cost less and they re so much more flexible on how they can ramp up and ramp down. We re trying to figure out what the emission regulations are going to be so people have a good feel for what the economics really are. Realistically, for any baseload generation to be built, it s at least a decade away. For the next 10 years, this country is going to be very dependent on gas-fired generation. ENERGYBIZ What have been the main surprises since Duke Energy spun off its natural gas business at the beginning of 2007, forming Spectra Energy? FOWLER How well things have gone. You know, doing this spin-off is a little more complicated than it really sounds. It s somewhat like unscrambling an egg. I ve been very pleased with how we ve continued to execute on the big capital expansion plan that we have. One of the bigger surprises that I ve had has been how hard it s been for us in establishing our new identity. 76 EnergyBiz March/April 2008

2 Fred Fowler PHOTO COURTESY OF Spectra Energy ENERGYBIZ The company started as the old Panhandle Eastern in 1929? FOWLER That is correct. We spun off the Midwest pipes in 1999 and later sold them to Southern Union. ENERGYBIZ Describe your Canadian gas distribution business. Do you distribute gas in the United States? FOWLER No. The only distribution that we have is in Ontario, Canada. It s Union Gas, which is really made up of three distinct businesses. It is the second-largest local distribution company in Canada. It also has a very major and high-quality underground gas storage position. And it also has a transmission business that takes gas from both mid-western and western Canadian pipelines and distributes it to several eastern Canada and northeast U.S. pipelines. ENERGYBIZ Do you aspire to own any distribution in the United States? FOWLER That s really not our focus. Our focus is more at the wholesale level. Today, our assets are primarily natural gas and natural gas liquids. Going forward, we would like to broaden that back into petroleum products and crude oil, and the transfer and transportation business around those as well. ENERGYBIZ You have 17,500 miles of transmission. FOWLER It s in the United States, British Columbia and Ontario. We have refocused the company over the last decade much more toward eastern U.S. markets because they re the fastest-growing markets in the United States. ENERGYBIZ You also have 265 billion cubic feet of storage? FOWLER We ve got 150 billion cubic feet at the Dawn storage facility, more than 75 billion cubic feet on the Texas Eastern system in Pennsylvania as well as other facilities. ENERGYBIZ Describe your gas gathering and processing efforts. FOWLER We have two pieces in western Canada, primarily in British Columbia. In the U.S. we have a joint venture with ConocoPhillips that s the largest producer of gas liquids in the United States. We have about 56 processing plants which produce about 360,000 barrels a day of natural gas liquids. ENERGYBIZ Describe the structure of Spectra Energy. FOWLER Spectra is really made up of two businesses. One is our gas transmission business that we own 100 percent. Our joint venture in the gathering and processing business in the lower 48 states is with ConocoPhillips. About 60 percent of our net income comes from our gas transmission business. About 40 percent of it comes from the U.S. gathering and processing joint venture, DCP Midstream. ENERGYBIZ You have 7,300 employees. How hard has it been to get them all rowing in the same direction? FOWLER Actually, I think since the spin-off, it s been a lot simpler. That s one of the things I love about the spun EnergyBiz 77

3 » INTROdUCING IT S very clear To our employees what we need To do To be SUcceSSfUL. out companies. I love the simplicity of our story, both from the standpoint of explaining it to Wall Street and investors, but also in how you can really motivate your employees. It s very clear to our employees what we need to do to be successful. ENERGYBIZ Well, when the spin-off took place, James Rogers, the CEO of Duke Energy, said the remaining pure-play electric company would have an annual earnings growth through the end of 2009 in the range of 4 to 6 percent. Do you expect that kind of result on the gas side? FOWLEr I think we should see slightly larger growth than that. We re projecting 5 to 7 percent growth. ENERGYBIZ FOWLEr So, pure play has worked for both of you? Yes. ENERGYBIZ What would you say today is the greatest misunderstanding about the gas business in the United States? FOWLEr Consumers probably don t appreciate what a great value natural gas is today. Gas today sells at literally half of what oil is selling for on a British thermal unit equivalent basis. So if you were heating your home today with oil, you d probably be paying twice as much as you re paying for natural gas. SpEcTra ENErGy Net income 2006: $919 million Operating revenue 2006: $4.5 billion Net income 2007: $969 million Operating revenue 2007: $4.7 billion Employees: 7,300 Transmission pipeline: 17,500 miles Storage capacity: 265 billion cubic feet ENERGYBIZ You say we need more LNG. Is that generally understood? FOWLEr I don t think it s appreciated enough. We ve been having extremely high gas prices now for quite a few years. All we ve been able to do in North America is basically just stay even on production, even at these high prices and at record levels of drilling. Canada is going to be using a lot more of its own gas than it has historically so we re going to be getting less gas out of Canada. But the market continues to grow, primarily driven by electric generation. So to me, we are at a point where we re going to be dependent on foreign sources of gas. What I don t want to see is for us as a nation to make the same mistake on natural gas that we made on crude oil, where we overproduced our domestic resource and became over-dependent on foreign sources. We need to bring in foreign sources of gas at a time when we still do have a healthy domestic resource base that can help keep prices lower. ENERGYBIZ Will Spectra Energy get involved with LNG production and transportation? FOWLEr We do not want to be a commodity player. We want to be an infrastructure player and a service player. 78 EnErgyBiz March/April 2008

4 ThE GENESiS of SpEcTra ENErGy 1929 Panhandle Eastern Pipeline Co. formed 1989 Panhandle Eastern Corp. merges with Texas Eastern 1996 Formal name change to PanEnergy Corp. We are expanding our underground storage position. We think LNG is going to dramatically increase the need for storage in the United States. ENERGYBIZ You have said that Spectra Energy has had a bit of an identity crisis since it was formed one year ago. How would you like it to be perceived? FOWLEr I want it to be perceived as a natural gas empire an energy infrastructure company PanEnergy merges with Duke Power to form Duke Energy Corp Spectra Energy formed as result of Duke Energy spin-off of gas operations NO OTHER EVENT COMES CLOSE TO OFFERING THE DEPTH AND SCOPE OF CONTENT AT ELECTRIC POWER COAL. GAS. NUCLEAR. RENEWABLES. It is all covered at the world s leading conference for the power generation industry. May 6 8, 2008 Baltimore Convention Center For information on attending or exhibiting visit or call EPad_7.25x4.75.indd 1 2/4/08 12:22:06 PM EnErgyBiz 79

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