Philadelphia Gas Works is moving forward on a plan to expand its liquefied natural gas plant in Port Richmond to produce fuel for non-utility customers, exposing the city-owned utility to potential profits - and perils - of competitive business markets.
On Tuesday, PGW will seek proposals from companies to buy and market LNG produced from a $120 million expansion at its plant. The utility believes there is a growing demand for LNG to fuel long-haul trucks, trains, marine vessels, and remote power-generation facilities.
The utility's leaders are confident that sales of LNG will generate enough revenue to cover estimated annual debt service of $7 million for the new project and also provide rate relief for customers. PGW has sold 2,000 truckloads of surplus LNG from the plant in recent years, earning millions for its ratepayers.
"We believe LNG is a fertile opportunity for us," said Craig White, PGW's chief executive.
PGW's request calls for gas-marketing companies to submit proposals by May 23, which could include plans to build rail-loading or ship-loading facilities on the Delaware River. PGW plans to select a vendor by Sept. 1.
The marketing agreement would form the foundation for PGW to then ask its board, the Philadelphia Gas Commission, and City Council to allow the utility to borrow an estimated $120 million to more than double the liquefaction capacity of the Port Richmond plant.
The expansion project, which PGW would aim to build in Port Richmond's existing footprint by early 2019, would be owned and operated by the utility.
The project would make PGW a larger player in discussions about an emerging regional energy hub built on expanded uses for gas produced from the Marcellus Shale region.
PGW aims to profit from the underused storage capacity of the Port Richmond plant, located between I-95 and the Delaware River, where twin insulated tanks together hold about 50 million gallons of LNG. The 45-year-old plant was designed for a city with a greater population and a larger appetite for energy, and PGW now needs only about half the storage capacity to keep its customers supplied with natural gas during the winter.
LNG is produced by chilling natural gas to 260 degrees below zero, where it remains in liquid form as long as it stays cold. PGW typically produces LNG in the summer, when there is low customer demand for natural gas. It converts the liquid back to gas during the winter.
The merchant LNG venture would mark a new frontier for the city-owned utility, whose past investments were designed to deliver a reliable supply of natural gas to its 500,000 customers.
Unlike investor-owned utilities, whose shareholders would bear the risk of any nonregulated business ventures, PGW's customers would be on the hook for the costs of the project should it fail.
The utility's LNG capabilities attracted much interest from bidders when the Nutter administration sought to privatize it in 2014. When City Council killed the proposed $1.9 billion sale of PGW, some Council members said they were reluctant to give up the utility's profit-making potential to private investors.
White said PGW needs growth opportunities to offset the long-term decline in consumption by its static customer base, which is facing higher costs to replace the utility's aging infrastructure. He believes the LNG expansion could generate incremental revenue of up to $15 million a year, twice the project's debt service.
"I've been here 36 years, and that's the single largest new load opportunity we've been able to generate at Philadelphia Gas Works," he said.
The Port Richmond expansion project would not be aimed at exports. New large LNG export terminals now coming into service along the Gulf Coast and in Lusby, Md., produce billions of gallons of fuel a year.
White said the expansion project would consume about 21 million cubic feet of gas a day to produce 250,000 gallons of LNG and would require no additional pipeline capacity. PGW estimates it will produce an additional 63 million gallons of LNG a year.
An LNG venture is likely to face opposition from climate-change activists, who oppose any expansion of fossil-fuel markets as harmful to the environment. Protesters disrupted a hearing last April organized by Councilman David Oh to explore potential LNG export ventures for the city.