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Trade Group Exec Says New England Power Generators Failing to Secure Long-Term Gas Contracts

New England's power generators aren't subscribing to the kind of natural gas volumes that would serve peak demand during cold stretches like those seen during the polar vortex of winter 2013-2014 and they're not driving the region's infrastructure growth, says Northeast Gas Association CEO Thomas Kiley.

"Our local gas distribution companies in New England are, in fact, signing-up for pipeline capacity, but on the power generation side not so much, and that is a huge problem" Kiley told an oil and gas industry audience last week at Hart Energy's Marcellus-Utica Midstream conference.

Kiley's remarks came after other speakers aired concerns about an Appalachian pipeline overbuild that could harm the region if demand isn't in place for growing Marcellus and Utica shale natural gas production. Mark Eisenhower, vice president of strategic planning and development for Aspire Energy of Ohio, started the conference by saying significant concerns remain about the power industry's role in stoking demand as efficiency and gas-power coordination issues make it uncertain for now.

A debate also persists about how much pipeline capacity New England actually needs to meet demand (see Daily GPINov. 18, 2015Aug. 31, 2015). The region has been shifting to natural gas for power and heating needs over the last two decades and natural gas is competing with renewable energy sources in a culture that at times doesn't appear ready to embrace another hydrocarbon. Kiley, whose organization represents natural gas distribution, transmission and liquified natural gas companies, says that has the region's industry frustrated.

While a bevy of pipeline projects have been announced to move more natural gas, particularly from the Marcellus and Utica, to New England, Kiley pointed to Spectra Energy Corp.'s Algonquin Incremental Market (AIM) Project and Kinder Morgan Inc.'s Connecticut Expansion Project as examples of New England's market for natural gas. Both of those projects would expand existing systems to deliver more gas to the Northeast and both are under construction and slated for November 2016 in-service dates.

Kiley said when Spectra announced its AIM project, the plan was to expand capacity by 650 MMcf/d. The project has since been downsized to 342 MMcf/d. Its customers include eight southern New England LDCs, while three gas utilities have long-term agreements for gas on KMI's expansion. Other New England projects, such as KMI’s Northeast Energy Energy Direct Project, have been downsized since they were announced due to a reported lack of customers (see Daily GPI, June 4, 2015)

Kiley called that "an enormous situation" and a problem for New England states.

"Our gas industry argues vociferously that it's really not capacity constrained because our local gas distributors have the capacity they need," he said. "They have had it, and they're going to continue to add it as they grow. The power generators don't sign up. So, on a really, really cold stretch of three days, by that third day, they can be in a significant situation."

A point in case was the polar vortex of 2013-2014, when the nation experienced one of its coldest winters in decades. The weather sent gas prices to record-setting heights and left unsubscribed power generators scrambling for gas. At the same time, grid operators, such as ISO New England Inc. (ISONE) were left to fill any voids and direct electricity as they could.

"On the electric gas-fired generation side, we're dealing with some new economic dynamics that really first came to light to the larger public with the polar vortex," said Kurt Krieger, a principal at Steptoe & Johnson LLP, which represents companies across the oil and gas industry. "At that time, we were all shocked to find that there was like 50% of gas-fired generators in ISONE alone that couldn't run. And the press reports you read about pipeline constraints and how you couldn't get gas, and this and that, there was plenty of gas; it was just [generators'] economic model at the time.

"Their own model, or the regulators, didn't support them signing up for the firm transport capacity they needed to get gas to those plants to operate," Krieger added.

Last week, ISONE President Gordon Van Welie said natural gas-fired power plants produced just under half, or 49%, of the electricity generated in New England (see Daily GPI, Jan. 27). "The region will continue to be in this [precarious] position until New England's natural gas infrastructure is expanded to meet the demand for gas," he said.

But Kiley said generators first need to commit to more natural gas. This, he said, would aid FERC and local officials in facilitating proposed projects for the region. Both Krieger and Kiley said that while they remain concerned about widespread opposition to infrastructure projects in New England, they're confident that Federal Energy Regulatory Commission officials understand the need for more gas to make it to the Northeast, whether through expansion projects or new-builds.

Some of the tariffs enacted since the polar vortex by grid operators, such as penalties for generators that don’t have adequate capacity, and FERC's move last year to revise the interstate natural gas nomination timeline to include a third intraday nomination cycle during the gas day, would help stoke more demand for gas from power generators, they said (see Daily GPI, April 16, 2015).

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