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Northeast Prices Leave Gulf Points Far Behind

Northeast Prices Leave Gulf Points Far Behind

It may be time for all the critics of the proposed Independence, MarketLink and Millennium expansions to pipe down. Gas deliverability to the Northeast clearly is not as rosy as many industry experts once thought as illustrated by the record high gas prices last week during a period of extreme cold.

While the Midwest and Gulf of Mexico were nickel and diming it last week, gas prices at the New York City Gate were moving up in dollar increments all the way to $19/MMBtu. Gas prices upstream at the Henry Hub languished around $2.50. All of a sudden it seems as though pipelines to the Northeast market have turned from lead to gold.

"For the first time in three years we are finally seeing the value of pipeline capacity," said Jeff DuBois, director of gas supply and off-system sales for Folsom, NJ-based South Jersey Gas. "It's been depressed for three years and now all of a sudden every drop of space is needed to serve the markets in the Northeast along with any other peak shaving supplies people can come up with.

"What's funny is during this whole period the price of gas in the Gulf of Mexico has really not changed that much," he noted. "It's basically within a nickel of the first of the month index. The difference in price is all in the value of that pipeline capacity."

Transco Zone 6 New York spot averaged $15.50 last Thursday while spot prices at Transco Station 65 in Louisiana averaged only $2.54. All the New York and New England market points were rocketing to new heights late last week. Iroquois averaged $10.25 Thursday and Tennessee Zone 6 averaged $10.83/MMBtu. Meanwhile Chicago Citygate prices settled in the low $2.60s.

Tight deliverability and single digit temperatures were to blame. The cold triggered peak gas demand records throughout the Northeast region. For example Philadelphia-based Peco Energy reported a new record sendout of 718 MMcf/d --- 16% greater than the previous record day six years ago, Jan. 20, which shows just how long winter has been away in the Northeast. PECO reached the record Monday when temperatures peaked at only 16 degrees, and the frigid, extreme cold returned Friday when another peak demand day was expected.

Last Monday also was the day Pittsburg, MA-based Berkshire Gas broke a sendout record when temperatures dipped to minus 2 degrees Fahrenheit. The company's last daily sendout record of 45,813 Mcf, set in February 1995, was surpassed with a 24-hour gas sendout ending Tuesday morning of 53,053 Mcf. During an average winter day, gas sendout would normally peak at 35,000 Mcf.

Berkshire's President Robert M. Allessio said it was "further testament to the load growth that we have realized in recent years and the performance that can be expected during normal winter weather. For several years now, we have been handicapped by warmer than normal weather and, while the early part of this winter was also warmer than normal, we are encouraged by recent weather trends and the outlook for the remainder of the heating season." Berkshire serves 34,000 customers in western Massachusetts.

Baltimore Gas and Electric (BGE) reported that its 575,000 gas customers set a new record for consumption Monday at 795,700 Dth --- a 4% increase over the previous record. The old record was set on Jan. 18, 1997 with BGE delivering 765,000 Dth. Also, BGE broke the hourly delivery record by 3.5% by delivering 38,100 Dth on Jan. 17 from 7 to 8 a.m. The previous record was set on Jan. 19, 1994 with 36,800 Dth.

KeySpan Energy on Long Island scrambled to meet consumption that was twice the normal rate for winter usage. In early January, Long Island usually requires 300,000 to 400,000 Dth of gas each day. However, on Monday, Long Island set an all-time record high in demand of 641,613 Dth, surpassing the previous record of 585,000 Dth set Jan. 19, 1995. The story was similar at KeySpan's operations in New York City. During the cold snap on Friday, January 14, gas demand hit 1,050,364 Dth in Brooklyn, Staten Island and Queens, an all-time high --- at least until low temperatures on Monday increased demand even further to another record high of 1,079,176 Dth. KeySpan said it had "more than adequate supplies to meet customers needs throughout the region." Enron currently is managing all of its supply, transportation and storage.

"Our reliability to meet the demand of our customers has not been compromised at all," said KeySpan spokesman Robert Mahoney. "We do have a sizable LNG facility here in New York to facilitate distribution in peak demand times.

"But we've had record sales growth. After merging with the former Long Island Lighting Co. our gas market on Long Island has doubled," he said. "There is definitely a need to build more pipelines in the Northeast."

Meanwhile across the river in New Jersey, South Jersey Gas, which serves 271,000 customers in the state, also had a record peak demand Monday of 387,792 Dth. "We're looking at projected sendouts Friday of about 413,000 Dth," said DuBois. "We should be able to make that, but we don't have a lot of capability beyond that," he admitted.

"The Northeast hasn't really been tested for at least three winters now and yet the customer base, especially in our territory, continues to grow." A South Jersey spokesman said residential gas demand has grown nearly 3% year over the past three years and continues at that pace.

"This LDC is served by only two pipelines directly, Transco and Columbia, and both of those pipes are fully subscribed so there's no growth that's going to come out of those. You end up with some real heavy reliance on, for one thing, your LNG supply in your own territory, which is what we've been utilizing this past peak day on Monday and we are going to utilize it again on Friday, I'm sure.

"I think it's a real issue going forward as the market area keeps growing that there's going to be the need for additional pipeline capacity coming into the area," said DuBois. However, South Jersey, like the other New Jersey and New York utilities as well as LDCs in a couple other Northeastern states, is facing a dilemma regarding new firm capacity because of systemwide customer choice. "When it comes time to subscribe, who is going to be the party that antes up."

Statewide customer choice has just begun in New Jersey and marketers are not required to use utilities' upstream firm capacity. Both KeySpan's Mahoney and DuBois indicated the LDCs were not willing to step forward and sign up for capacity on either Transco's proposed MarketLink project or the 1 Bcf/d Independence expansion because of deregulation. The 700 MMcf/d MarketLink project, which would run from the Leidy Hub in Pennsylvania to markets in New Jersey and New York, is fully subscribed by marketing companies and producers rather than the traditional pipeline customers, the LDCs. It remains to be seen how successful the new retail marketers will be in managing peak demand. The LDCs clearly are still worried they'll take the blame for any delivery failure.

"We're constantly evaluating a 10-year window as to what our growth is projected to be in our territory. We have been able to meet it for this winter and expect to do so next winter through the acquisition of peaking supplies or other types of service like our LNG. Out on the horizon though there has to be some incremental capacity in order to serve the customer needs," said DuBois. "But I guess you end up in a regulatory battle over whether you can recover those costs if you go out and acquire those new supplies."

Rocco Canonica

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