Is there a natural gas export terminal in Philadelphia's future?
The brokers selling Philadelphia Gas Works hope to plant the idea of exporting liquefied natural gas (LNG) and other potential growth opportunities in the minds of prospective buyers of the city-owned utility.
"There's a lot of money to invest in utilities right now," Paul Dabbar, the JPMorgan banker who is the city's lead broker on the PGW sale, said Monday. "They're just looking for growth opportunities."
JPMorgan and its partner, Loop Capital Markets, are preparing to formally issue a request for qualifications in early August from prospective bidders for the 176-year-old gas works, the nation's largest municipal gas utility.
The request will launch a two-round auction process that Mayor Nutter hopes will attract a sufficiently large offer by the end of the year and that the Philadelphia City Council will agree to sell. A sale would also need the approval of the Pennsylvania Public Utility Commission.
"We remain bullish," said Suzanne Biemiller, the mayor's first deputy chief of staff, who is managing the sale. "We continue to think there's interest in PGW out in the market."
As a stand-alone utility, PGW is not necessarily an exciting investment. Constrained by the city's borders, PGW's customer base of 500,000 is static and becoming more energy efficient each year - not a recipe for selling more gas.
But the utility's position along the Delaware River puts it in a strong position to take advantage of opportunities related to the Marcellus Shale natural gas boom that are now beyond its reach as a municipal utility with legal and capital constraints.
"There are things like interconnections from some of the larger pipelines, built in the city area to move a lot of the Marcellus Shale gas . . . or obviously the prospect of the waterfront for LNG or some other kind of wholesale opportunities, separate from the retail residential base," said Dabbar, managing director in JPMorgan's Global Mergers & Acquisitions Group.
PGW already produces liquefied gas at its Port Richmond plant, but the facility is designed to store the super-cooled liquid for use on peak-demand days in the winter. LNG export facilities are multi-billion-dollar investments, and much larger than the Port Richmond plant.
More than two dozen applications to export natural gas are currently pending before the U.S. Department of Energy, and most experts believe only a few will be approved.
"With 20 or more applications in the queue, it would be late in the game," said James Balaschak, an energy expert with Deloitte Consulting.
There is also considerable political opposition to exports from consumers and environmentalists who fear it will increase drilling and drive up the price of natural gas.
PGW got a taste of the emotions that LNG can trigger when it explored the prospect of building an import terminal less than 10 years ago on the Delaware, setting off howls of protest.
The brokers say private owners of PGW could develop opportunities other than LNG. The utility could earn fees for providing services or partnering with new gas-intensive industries, said Thomas R. Rosén, managing director of Loop Capital.
The commission-only brokers could earn more than $12 million in fees if they are able to fetch the $1.85 billion that the city's financial advisers last year estimated to be the high end of the utility's value.
The city might net nearly $500 million after paying off PGW's liabilities. Nutter says the proceeds would be used to reduce the city's pension obligations.