Tight pipelines hinder natural gas chance
MANCHESTER — Most of the country is enjoying historically low and stable energy prices, except New England, where a lack of pipeline capacity is constraining the region's ability to take advantage of the natural gas revolution, according to several speakers at an energy conference on Wednesday hosted by the Business and Industry Association.
"You can't get the gas into New England on days like today," said Jim Schuckerow, director of electric supply for Northeast Utilities, alluding to the unseasonably cold weather outside the Center of New Hampshire. "There is no space on the pipelines."
Most of the capacity for natural gas to be delivered into the region on extremely cold weather days is locked up by local distribution companies like Liberty Utilities, which provide gas to heat homes and business. They purchase long-term contracts for delivery, and on really cold days, those contracts take up most of the available space on the five pipelines into the region.
That means the operators of power plants looking for gas to fuel their generators pay an extremely high price on the spot market, or simply pull their plants off the grid until the prices stabilize. The result has been an erratic market for energy prices in New England, even when compared to our nearest neighbors in New York state, Schuckerow said.
The delivered price of natural gas into New England is expected to average $8 per decatherm this winter, compared to an average of $2 in New York, which has seen six new natural gas pipeline projects in the past two years, with two more coming online in 2014.
"The price of natural gas into New York is now lower than the price of natural gas delivered in Louisiana," Schuckerow said.
The companies that own the Marcellus wells and extract the gas through hydraulic fracturing have spent their own money to extend pipelines into New York state and New York City, but are not ready to invest in New England without long-term commitments from power plant owners to buy the gas at fixed prices.
"We're putting 40-year assets into the ground and looking for 15- to 20-year contracts to support that," said Cynthia Armstrong of Portland Natural Gas Transmission Systems.
Armstrong's company is trying to enhance capacity along some existing lines that serve much of New England. "The issue that still needs to be resolved is how to get the power generators involved," she said. "Too many suppliers in New England rely on interruptible supply."
The companies that own gas-fired power plants, which now provide more than 50 percent of the region's electricity, find it more profitable to play the spot market, rather than sign long-term contracts at fixed prices.
They can make good money in the mild weather months, when the pipelines have capacity, and shut down on the few coldest days of the year, when price for gas delivered to New England skyrockets. That pattern nearly caused roving brownouts in the region during the coldest days last winter.
Winter reliability concerns
ISO New England, the regional nonprofit organization that manages the New England power grid, has launched a Winter Reliability Program to reward plants that stay online. Whether the complicated set of sanctions prompts more power plants to purchase long-term contracts remains to be seen.
For now, the market is stuck in what Chip Yost of the National Association of Manufacturers called a "chicken and egg type of thing," with power plant owners and pipeline builders each waiting for the other to move first. Jobs and economic development are at stake, as manufacturers are reluctant to move into a region with that kind of uncertainty in power pricing.
"You're going to have to figure out how to bridge those issues," Yost said.
The gas producers were willing to assume the risk of building pipelines into New York because the size of the market and its proximity to Pennsylvania made it "low-hanging fruit," said Armstrong. With millions of residential and commercial gas customers throughout New York state, and policies that promote natural gas use in New York City, they could be confident of a return.
The conditions are different in New England, where the infrastructure for delivery of natural gas to homes and business is limited, particularly in Maine, New Hampshire and Vermont.
Curtis Cole, with Tennessee Gas Pipeline, described his company's efforts to build a new 30-inch pipeline from Wright, N.Y., to Dracut, Mass., which could bring natural gas from the Marcellus fields into New England as early as 2017 or 2018.
"I'm trying to convince folks to sign on to an expansion project so you can see the benefit (of Marcellus shale) in New England," he said of efforts to obtain contracts from power producers.
Spectra Energy, which runs major gas pipeline networks between the Gulf Coast and the Northeast, recently completed a $1.2 billion New Jersey-New York expansion project, but scaled back a planned pipeline into New England, due to lack of interest from electric power generators.
Diversifying the fuel mix so that the region is not so reliant on natural gas may help, but will not put the region on par with the rest of the country when it comes to energy prices, said Chico Dafonte of Liberty Utilities.
"Diversity is great," he said. "But it's no substitute for pipeline expansion."