Do we need a 250-mile natural gas pipeline?

While the debate on Kinder Morgan’s proposed 250-mile natural gas pipeline will continue to rage on, I keep scratching my head trying to understand exactly why it is a good idea in the first place.

To be sure, there is a ready answer from the utility industry — the pipeline is needed to move enough natural gas into the region on really cold days. But is that the real reason?

Before getting into whether the pipeline is needed, let’s look at the current state of play in the debate over where to locate the pipeline. As the Telegram & Gazette reported, Allen Fore, vice president for public affairs for Kinder Morgan, is expected to make an announcement Dec. 8 about the new proposed route and file it with the Federal Energy Regulatory Commission.

A new map shows the pipeline heading north into southern New Hampshire, paralleling the earlier proposed route through northern Central Massachusetts towns that were up in arms about the previous proposal, then reconnecting with the existing pipeline near Dracut.

As the T&G reported, “Under the alternative route, the pipeline would still go through Western Massachusetts communities but would not pass through areas of Orange, Athol, Royalston, Winchendon, Ashburnham, Ashby or Townsend. The original proposed route showed the pipeline going through those towns, though it didn’t show specifically where it would be in those towns.”

It is unclear whether the New Hampshire towns will be more accepting of this pipeline than Massachusetts has been.

So what is the argument that merits the need for this pipeline with its ensuing political controversy?

As best I can tell, it boils down to increased demand and supply for natural gas, and insufficiently wide pathways to move the gas from where it’s mined to where it’s used.

This inadequate pipeline capacity means that electric utilities can’t get enough natural gas on very cold days, so they have to resort to using backup fuel — like stored oil — which is much more expensive, according to The New York Times, or buying natural gas on the short-term market at very high prices, according to most other reports.

Here are some numbers to help clarify this argument. According to New Hampshire Public Radio, from 2000 to 2013, New England built dozens of power plants as demand for natural gas rose from 15 percent to 46 percent of its energy demand. During this same period, the supply of natural gas also increased, but not in our backyard, as a result of fracking. One of the closest places where that supply is being produced is named after Marcellus, New York — the so-called Marcellus Shale.

The argument is that this supply of natural gas coming out of the Appalachian Mountain region is sufficient to meet New England’s increase in demand.

Where does New England get its current natural gas supply? Some comes from Canada, and some from offshore liquid natural gas terminals.

National Public Radio argued that during times of peak demand — on very cold days — electric utilities must pay higher prices to meet the demand on the so-called spot market. I wonder whether this is true — or whether the electric utilities are using the stored oil, bought at prices higher than they are now, to meet the extra demand.

The $2 billion to $3 billion pipeline that Kinder Morgan is proposing would not be working until 2018, and there is no guarantee that its construction would lead to lower energy prices — just a profitable investment in the minds of those Kinder Morgan investors.

A better alternative to this proposed pipeline might be to use more stored oil as a supplemental source of energy on very cold days, or to import more liquefied natural gas on the relatively few days when it can’t be supplied by the existing pipeline.

According to New Hampshire Public Radio, it might be possible to “import gas and plug it into the pipeline network at a different spot” to avoid the bottleneck.

Tony Scaraggi, vice president of operations at New England’s only liquefied natural gas import terminal, Distrigas, said New England only hit its maximum pipeline capacity for 40 days last winter.

“That’s equivalent to, like, two and a half to three LNG tankers coming in. So you gotta compare that to the cost of a $2 to $3 billion pipeline,” Mr. Scaraggi told NHPR. He believes that burning more expensive foreign natural gas would be less expensive than building the new pipeline.

I am guessing that the opinions about this pipeline reflect the opposing self-interests of all the participants in this debate. This leaves many questions that I am struggling to answer:

Will the proposed pipeline reduce utility rates?

Will the costs of the proposed pipeline ultimately get paid for by consumers in the form of higher taxes or higher utility rates?

Are there less costly alternatives to supplying the demand for energy on days when the natural gas pipeline cannot meet that demand?

And the most important questions are: Has anyone done an objective analysis of this problem? If so, what is the best solution for the people of Massachusetts?

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College.

telegram