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Page added on February 19, 2014
Gas pipeline not enough to avert New England energy crisis
New England is facing an energy crisis brought on by high natural gas prices, and the call by governors in the six states for a new, publicly funded natural gas pipeline does not go far enough to solve the problem, according to a detailed analysis of the region’s energy options.
The 30-page analysis, released on Feb. 11, was conducted by a consulting group, Competitive Energy Services of Portland, Maine, on behalf of the Industrial Energy Consumer Group, which represents large-scale users of electricity in New England.
“The governors’ recommended addition of one billion cubic feet of natural gas pipeline capacity will help lower energy prices,” according to the analysis, “but will still leave New England paying $600 million more for energy annually than if adequate pipeline capacity existed.”
The consultants used 12 months of 2013 data to estimate future trends, and concluded that New England needs two billion cubic feet of new natural gas pipeline capacity — twice what the governors are calling for.
“Since 2012, a fundamental shift toward higher costs due to inadequate gas pipeline capacity has occurred in New England,” they wrote.
It was just a year ago that the ratepayers in the region were enjoying lower costs attributed to new sources of natural gas tapped in nearby Pennsylvania and Ohio.
Although some experts predicted that the honeymoon would be short-lived, few if any anticipated the dramatic price swings alluded to in the CES analysis, which stated, “Previous studies did not perceive this fundamental shift because of the unavailability of 2013 data.”
According to Maine attorney Anthony Buxton, counsel to the Industrial Energy Consumer Group, “This winter has provided frigid witness to the highest energy prices ever experienced by New England — prices routinely twice as high as those of last winter.”
The human and economic costs have been significant, he said: “On just one Friday in January, the total cost of electricity in New England was $100 million more than what it would otherwise have been if New England experienced prices like the rest of the nation. The total above-market energy costs to New England in 2014 will be in the billions of dollars.”
Buxton points out that in neighboring New York and Pennsylvania, natural gas is available at prices that often dip below $3 per million BTU, but because New England lacks adequate natural gas pipeline capacity, natural gas prices in cold weather have routinely been above $20 per million BTU.
A unique NE burden
“To make matters worse, these prices drive up the price of electricity astronomically for virtually all New England consumers,” Buxton wrote. “Electricity prices have routinely doubled this winter … These prices have closed New England mills for weeks on end, strained home budgets and burdened New England’s economy uniquely among regions in the nation.”
The worst is yet to come, he continued, “as customers with fixed-price contracts this year see those contracts expire and must now face the grim reality of much, much higher energy costs next winter.”
Unregulated competitive energy suppliers who found it easy to compete with regulated utilities on price in 2012 are now struggling to offer a better buy to consumers, if they can.
Any new hydroelectric lines into the region from Quebec or Eastern Canada will help replace the region’s aging coal, oil and nuclear plants, but will do nothing to reduce the need for two billion cubic feet of new natural gas pipeline capacity into the region, according to the analysis.
The consultants warn that failure to create new pipeline capacity will make hydro-electricity from Canada more expensive, even if the Northern Pass is built, as high electricity prices in the region are used as a basis for bids from Hydro-Quebec.
“Additional pipeline capacity into New England serves to discipline Canadian energy suppliers by reducing their pricing power,” the report states. “To be assured of obtaining low prices for any imported Canadian electric energy, New England must move forward with developing additional pipeline capacity as soon as possible, and before entering into any electricity purchase agreements with Canadian suppliers.”
New England is currently served by five interstate natural gas pipelines, the two largest being Algonquin Gas Transmission, owned by Spectra Energy and the Tennessee Gas Pipeline, owned by Kinder Morgan.
Both Spectra and Kinder Morgan have indicated a willingness to spend millions on gas line expansion into New England if they can get guaranteed 15- to 20-year contracts at fixed prices for the capacity. With New England governors willing to put ratepayer dollars on the line to execute those contracts, some construction now appears likely, although no new capacity is likely to go online before 2018.
A promising initiative
One of the most promising initiatives is the Tennessee Gas Pipeline Northeast Expansion Project, which would result in 250 miles of new pipeline, meter stations and upgrades to existing pipeline in New York, Massachusetts, New Hampshire and Connecticut.
“We are currently assessing market interest,” said Richard N. Wheatley, director of corporate communications for Kinder Morgan in Houston. “Customer and shipper commitments are required before a project such as this might move forward.”
Even though Kinder Morgan has not formally applied to the Federal Energy Regulatory Commission for approvals, the company has already begun to contact landowners along the proposed route, mostly in northern Massachusetts, according to notices sent to town Planning Departments in early January.
“Tennessee anticipates that it will be able to locate a significant portion of the pipeline adjacent, or generally parallel, to existing pipeline and electric utility corridors,” wrote a Kinder Morgan official in a letter to the Planning Department in Dunstable, Mass. “Pending receipt of all necessary regulatory approvals, the proposed project is estimated to be placed in service by November 2018.”
The commitments to purchase, promised by the New England governors, could move the Kinder Morgan project forward, but not everyone agrees that “socializing” the cost of a new pipeline is such a good idea.
“Pipeline expansion is a worthy endeavor — one that should be undertaken by the private investment of pipeline companies based on capacity commitments from natural gas generators and local distribution companies,” said Marc Brown, executive director of the nonprofit New England Ratepayers Association.
“What happens if we build the pipeline and the price of natural gas climbs to levels we saw as few as 10 years ago? Then ratepayers will get hit twice — once for the pipeline and again for the expensive electricity. If we have learned anything over the past decade, it is that government doesn’t make very good decisions when it comes to energy policy.”
Brown said a better solution would be for the governors to create an environment that encourages private investment.
Whatever method is chosen, time is of the essence, according to the consultant report: “The additional pipeline capacity is necessary to enable New England electricity consumers to realize the benefits of the natural gas revolution that is benefitting the rest of the country.”
8 Comments on "Gas pipeline not enough to avert New England energy crisis"
Davy, Hermann, MO on Wed, 19th Feb 2014 12:42 pm
You can’t have your cake and eat it too. You can’t grow you population without first taking care of the infrastructure. These steps will also take money that might not be available. Sooner or later the infrastructure upgrades are not enough. There are diminishing returns to the amount of people you can cram into a region. You can’t maintain a high standard of living with these problems and grow. Yet, our financial system cannot survive without growth. Folks this is the classic description of a predicament. Until you recognize overshoot of a regions carrying capacity malinvestments will be made further stressing our financial system and support system. When you multiply this malinvestment due to faulty planning in multiple areas you are faced with a cascading bifurcation of tipping point with feedbacks. It will take time but like water changing state it has the potential to happen very quickly at some point. This is especially the case with an unstable financial system and global support system. We are talking a quick ride down the energy gradient instead of a gentle one. Out global support system cannot handle a quick decent. Since our local support relies on global support we are staring at a predicament of monumental proportions
rockman on Wed, 19th Feb 2014 1:14 pm
Interesting that so much focus on pipeline capacity and not much mention of supply capacity. It isn’t like the “Fields of Dreams”: build it and they will come with NG. I won’t try predicting the future but offer a bit of history about east coast NG deliveries during a period of limited supplies.
In 1977 I worked from Transco Exploration, a sub of Transco Pipeline that was a major NG delivery system to the eastern states. Owning the pipeline didn’t necessarily mean they could meet demand if they couldn’t get the NG in the south to push thru the line. Thus Transco Exploration was created to explore for NG itself. We would fund drilling projects and not only have the call on our share of the produced NG but also that of the drilling operator, such as McMoRan. TE would pay a disproportionate share of the drilling cost…i.e. paying a premium to play. But then the question remained: who would get the NG TE could deliver?
So a number of eastern utility companies formed a JV with TE. And I managed two of those programs. So TE paid a disproportionate share to the operator for the NG and the utilities paid a disproportionate share of TE’s costs. Hundreds of $millions invested in what turned out to be a world class clusterf*ck. First, TE didn’t know crap about exploration…especially who to partner with. In one of the JV’s I handled the operator drilled 18 wildcats for our band of brothers. And all 18 were dry holes…not one cubic inch of NG delivered to those utilities. The other ops did have some success. And then the world crashed into a major recession due to the high cost of oil. So even the successful drilling programs delivered NG at a cost far above the eventual market price.
But the entire project looked so good on paper in the beginning. Not so much at the end especially when you consider TE was crippled and eventually bought by another pipeline company. So I’m sure the folks in the north east are designing a plan to supply their future needs that looks attractive…on paper. We’ll see how they feel about the plan in 6 or 8 years.
Old La. joke: hard to remember the plan was to drain the swamp when you’re up to your ass in angry alligators.
Nony on Wed, 19th Feb 2014 2:36 pm
The growth in the Marcellus along with the restrictions on coal are creating opportunities [problems] for new gas pipelines [regarding lack of transport].
Davy, Hermann, MO on Wed, 19th Feb 2014 2:54 pm
@rock – we may have crossed paths I sold equipment to pipeline companies around that time. Spent some time in Mass, CT, and NY. Nice country I might add.
ghung on Wed, 19th Feb 2014 3:32 pm
Of course, our answer to everything is more capacity => deeper into overshoot => more capacity required => even deeper into overshoot…. Most haven’t noticed that this has been going on for decades as we keep throwing more money and capacity at the problem. Entire regions have are well into the period of robbing Peter to pay Paul’s fuel bill. Not sure what our grandchildren will do. Borrowing and squeezing the planet for more resources is no substitute for common sense. Perhaps we need another committee to study that.
Our entire culture is inherently self-limiting. Too bad our silly imaginations aren’t.
rockman on Wed, 19th Feb 2014 5:46 pm
Davey – Probably not. I only made one trip to Transco’s city gate in New Jersey just across the river from NYC. That was just on the way to Toronto to hang with a pipe salesman buddy. I did spend one nice quiet Sunday morning in Manhattan with an old girlfriend. Reminded me of the French Quarter in Nawlins…just taller. LOL.
The thing to remember about pipeline investing: it can take 4 to 7 years or so to recover the in initial investment. BUT: that’s only if you transport the volume you used in your economics. There were mucho $millions lost in east Texas/N. La. on pipeline investments anticipating big increases in production. And then NG prices crashed and drilling pulled way back. Less drilling = less NG production = less NG to charge to transport = lost their collective asses.
Davy, Hermann, MO on Wed, 19th Feb 2014 5:56 pm
@rock – tell me about losses. After my stint in sales which only lasted 4 years I drifted into finance. Talk about a loveless job. My job was making the finance happen for a big deal. The salesman gets the commission and credit for the deal even though the financing sold the deal. “Then” the deal goes south and I would have to go collect the $ or the equipment. The customer does not like a bill collector nor does the sales department. The top management likes sales over the credit department because that is where the personality is. Top management wants to stay friends with said sales force so they use said credit manager to be the bad guy that breaks the bad news. Anyway what does this have to do with gas pipelines? Another problem that comes with age mind wonder and storytelling!
GregT on Thu, 20th Feb 2014 6:54 am
“The consultants warn that failure to create new pipeline capacity will make hydro-electricity from Canada more expensive, even if the Northern Pass is built, as high electricity prices in the region are used as a basis for bids from Hydro-Quebec.”
Might be time to hire new consultants. Ones that actually tell the truth, instead of what people want to hear. The problems being faced in the US, don’t magically disappear north of the line drawn across the 49th parallel. Up in the great white north, they have energy problems of their own.