Shale gas and energy investing: Outlook for 2014

Posted on February 19, 2014
Posted By: Kirk Edelman
 

Last May, I wrote an article for EnergyPulse on shale gas as a potential game changer.  Since then, the developments in shale have taken the word ‘potential’ out of the equation.  Consider Siemens’ recent shale gas projects.  Recently, Siemens Energy received an order from Panda Power Funds to supply two power plant units utilizing Siemens’  H-class gas turbines for the "Patriot" combined-cycle power plant (CCPP) in Clinton Township, Pennsylvania.  Patriot, which will have an electrical generating capacity of 829 megawatts (MW) in combined-cycle duty, will use locally-sourced Marcellus shale gas as its fuel.  As with other recent key Panda Power Funds’ projects, Siemens Financial Services is also participating in the financing for the Patriot project.

Patriot is the second project in Pennsylvania awarded to Siemens by Panda Power Funds. The first order, for the "Liberty" power plant, was announced in August 2013.  Just like Patriot, Liberty is also using the Siemens H-class technology.  When they are completed, the Patriot and Liberty power plants will be two of the most technologically advanced power plants in the United States, supplying up to two million homes with clean power.
 
Panda Power Funds is also managing the construction of three high efficiency natural gas-fired power plant projects in Texas. As is the case with the Pennsylvania plants, Siemens Energy  is providing the technology and Siemens Financial Services is participating in the financing for the projects.  When these power stations come on line in the next two to three years, they will be among the cleanest natural gas-fueled plants in the U.S., with carbon monoxide (CO) emissions of less than 10 parts-per-million (ppm), and nitrogen oxide (NOx) emissions less than 2.0 ppm.  The Panda Power Funds’ projects have something else in common as well--  they represent the first merchant power transactions with construction risk in the Texas power market to be financed in nearly a decade.

The Panda projects not only demonstrate the current direction of the energy market, but are a harbinger of something else equally exciting.  In the U.S. and globally, energy and infrastructure projects that are soundly structured and provide reasonable returns have found access to  capital, including both equity and debt.  The Texas Panda Power Funds project deals are good examples of this as they were supported by an innovative  hedge supplied by the pension fund of a large corporate entity.  Despite the nontraditional deal structure, the debt side of all three deals was oversubscribed by two to three times signaling significant lender interest.

The shale gas boom is broadbased.  Natural gas-fired generation is a reliable source of power and can serve as a dependable back-up to intermittent wind and solar generation.   As the momentum of using shale gas gathers pace, the Liberty and Patriot plants in Pennsylvania point to yet another trend:  more  gas-fired power stations will be developed on sites near the shale gas fields to take advantage of this cheap fuel source.  In many ways, it is often more efficient to transmit electricity than to transport natural gas.

I recently had a chance to drive through Western Pennsylvania where the Marcellus shale industry is helping revitalize the region.  The shale industry here is credited with creating a range of jobs from drillers and riggers to work in ancillary services such as trucking, metal fabrication and engineering.  And while the estimates on the number of Pennsylvanians the industry employs vary, there is consensus on the economic and broader community benefits.  One local business illustrated it best.  As I drove by, I noticed that the shop sign that previously said simply, “Industrial Equipment Rentals,” had been quickly altered to read, “Marcellus Shale Industrial Equipment Rentals.”

As the country continues to shift away from coal and towards natural gas-fired power plants, there is little doubt that shale gas projects will attract investment, create jobs and help move the economy forward.  And that can only be good news for 2014 and beyond.
 

 
 
Authored By:
Kirk Edelman is the chief executive officer of Siemens Financial Services' (SFS) Project and Structured Finance - Energy business, where he leads energy investing activities worldwide. He manages the activities of a global team that provides financial solutions throughout the capital structure - from debt to equity – in support of the energy industry.Kirk has more than 20 years of experience focusing on energy, natural resources and infrastructure finance. Prior
 

Other Posts by: Kirk Edelman

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Comments

February, 19 2014

Ferdinand E. Banks says

Shale gas and shale oil are important, and the US is lucky to have them. But as for being game changers, that is a very different prospect. Being able to say that they are important suffices for now, because if they were genuine game changers the ignorant US Energy Minister would be trying to figure out how much of it should be exported.

February, 19 2014

Michael Keller says

Just a bit of a historical overview. I recall, not that many years ago, a race to build large numbers of natural gas combined-cycle power plants. Then the price of natural gas shot-up, with brand new power plants going into bankruptcy, as the loans to build them could not be repaid. Subsequently, investors could pick essentially new power plants up for cents on the dollar, with the original investors losing their shirts.

Europe is mothballing brand new combined-cycle power plants because gas costs too much.

"Game-changer"? Maybe, but history has a nauseating habit of repeating itself.

February, 28 2014

Richard Vesel says

The stealth issues I see in reading this brief article are these:

"Panda" is often, but not necessarily, associated with Chinese companies, so I would check into some kind of connection from the financing side.

Second, any projects with blatantly patriotic theme names raise red warnings to me as far as flag-wrapping any company* or project to garner unwarranted support from investors, politicians, etc. So projects "Patriot" and "Liberty" should be looked at critically.

Finally, the folks in Panda Energy International are not dyed-in-the-wool energy professionals, but more akin to well-heeled opportunists who are diving into an area where they smell money: http://en.wikipedia.org/wiki/Total_Nonstop_Action_Wrestling

I am definitely NOT a ranting conspiracy kook, but there are too many little things that rub me wrong about this company and their proposed projects. The outcome may then fulfill Mr. Keller's warning about history repeating itself, not for macroeconomic reasons necessarily, but because of the wrong people who are driving the program.

This all subjective opinion, based on instinct, rather than a solid collection of thoroughly researched and confirmed facts. So take it in that vein...

RWV

* The Freedom Group, for example, consists of a number of companies intent on profiting from the ever expanding marketing and sales penetration of small arms and personal-sized weapons of mass destruction to "average citizens". http://www.freedom-group.com/

Also note that the recent horrible contamination of the Elk River in West Virginia in January of this year was perpetrated by the company named "Freedom Industries".

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