DOE Studies Need for NE Pipes
If a new study under way by the Department of Energy (DOE) shows
more natural gas pipelines are needed to the Northeast, Secretary
Bill Richardson said he will go to Congress to promote the pipes to
help reduce the region's historic dependence on higher-priced
Speaking at a summit on price spikes in the heating oil market
last week, Richardson said the DOE will report to President Clinton
in 60 days on ways to reduce the Northeast's reliance on heating
oil, placing special emphasis on improving access to gas supplies.
"If gas pipelines are needed, we are prepared to go to Congress and
work [with] them," he told a Boston crowd last Wednesday.
"They feel this is a crisis situation [with heating oil prices]
and so they're using the power of their office and the Clinton
administration to make that one of the strong recommendations," Tom
Kiley, president of the New England Gas Association (NEGA), said in
an interview with NGI.
But some question whether escalating heating oil prices are
enough to justify spending billions of dollars on new pipelines to
Whether Richardson and the Clinton administration can hasten the
certificate process for the big Northeast gas pipeline projects
that currently are on ice at FERC --- Independence Pipeline,
SupplyLink. MarketLink and the Millennium Pipeline --- remains to
be seen. The Commission has conditionally approved the first three
projects, but is withholding their certificates until further
market demand can be demonstrated. Millennium still is awaiting
final environmental review.
The New England region, which has been heavily dependent on
heating oil due to the lack of access to gas pipes in the past,
especially is feeling the pain of higher prices. "Interstate
natural gas pipelines were late in reaching New England.....They
didn't reach here until the early, mid-1950s. And then when they
did, they were capacity constrained. That's no longer the case. The
gas companies are aggressively going after heating oil customers
and converting them," Kiley said. But converting heating oil
customers to gas isn't something that can be done overnight.
With five interstates now serving the region, "the pipeline
infrastructure in New England is satisfactory, [but] there's room
for expansion," he noted. "The new pipelines, such as Maritimes and
Portland Natural Gas Transmission System, .....can be expanded with
the addition of compression based on customer usage." He also
believes the Atlantic LNG project of Distrigas of Massachusetts
Corp. "strengthens the industry" in the region.
As retail prices for No. 2 heating oil reportedly were hitting
or exceeding $2/gal. in some parts of Northeast, a number of
heating-oil customers had decided that natural gas was looking
better and better to them.
Although this winter's price spike isn't expected to immediately
translate into greater gas demand in the region, Northeast gas
distributors said more heating oil customers are choosing to
convert to natural gas service for next winter because of the
stability of the commodity's price and deliverability. In New
England specifically, LDCs "are experiencing a significant increase
in requests for conversions from heating oil to natural gas,"
NEGA's Kiley said.
Gas Conversions Double in Boston
While the price for heating oil has been volatile this winter,
"the price for gas [at the burner-tip] was almost exactly the same
as it was last year" for Bay State Gas customers, said Carol
Churchill, a spokeswoman for the utility, which serves slightly
more than 300,000 gas customers in parts of Massachusetts, New
Hampshire and Maine. And even though gas demand during the January
cold snap set a new daily record for the utility (460 MMcf on Jan.
17), Bay State was able to meet its customers needs, she said, in
touting the benefits of gas over heating oil.
Boston Gas told a similar story. "The benefits [of high heating
oil prices] to the gas companies, ours in particular, is that over
the last three years, even when oil had a price advantage, we had
about 3,500 residents come on line --- about half of which were
conversions from oil," said Michael Connors, a spokesman for Boston
Gas, which has about 740,000 gas customers in central and eastern
Massachusetts. So far this year, requests to Boston Gas for
conversion to natural gas have doubled over last year, Connors told
In New Jersey, where Gov. Christine Whitman has taken aggressive
steps to moderate heating oil prices, utilities also anticipate
more requests for conversions from residential and business
customers. "A lot of these decisions are made at the end of the
heating season. Will the high price spike and the instability of
oil factor into these decisions? Absolutely," said Paul Rosengren,
a spokesman for Public Service Electric and Gas (PSE&G).
Joseph Alba, product manager of gas throughput with PSE&G
Service, believes higher heating oil prices will provide the
"acceleration factor" to customers, who own older heating-oil
units, and are on the "cusp" of deciding whether to stay with
heating oil or switch to gas. Accelerating the decisions of
industrial and commercial customers to switch are the stiffer
environmental laws and regulations. Companies are opting for
natural gas rather than running "the risk of getting fined," he
But gas conversions in New Jersey are at a "fairly high
saturation [point]," Alba said, so any campaign by PSE&G to
attract heating oil customers would be incremental and targeted.
"We've really dug very deeply into the gas market" in the state.
Likewise, KeySpan Energy said gas conversions in the New York
boroughs it serves are at a "high saturation rate," but that's not
the case in Long Island --- where only an estimated 28% of
households have natural gas. "The Long Island market is
experiencing record levels of conversions from oil to gas heat,"
said David Manning, senior vice president. In 1999 alone, KeySpan
acquired 10,000 gas customers from conversions and new
construction. He believes new pipelines to the Northeast will be
needed to meet this growing demand.
He estimated the rate of oil-to-gas conversions on Long Island
has nearly doubled since subsidiary Brooklyn Union Gas merged with
Long Island Lighting in May 1998. And inquiries from homeowners
this winter about conversion to gas are up 37% for the company, he
said. KeySpan serves 1.1 million gas customers in the New York
boroughs and about half a million customers in Long Island.
"I would think the gas utilities will have a lot more inquiries
[for conversions] during the off-season," agreed Tim Evans, senior
energy analyst for Pegasus Econometric Group.
Gas Users Save a Bundle
New Englanders have depended on heating oil to heat their homes
over the years, even though natural gas historically has had a
price advantage, Evans noted. For instance, the New York Harbor
price for No. 2 heating oil was the equivalent of $5.56/MMcf last
Wednesday, while the New York citygate for gas averaged about
$3.91/MMcf, he said.
Evans believes the worst is over with heating oil prices. He
said the wholesale price for No. 2 heating oil peaked at $1.80 per
gallon, which equates to $13/MMcf, on Jan. 21. Since then,
wholesale prices have fallen by more than a $1 to rest at around 75
cents last week. The price drop is partly due to the fact that
"there is talk about import shipments [of heating oil] due to
arrive soon and the weather has turned milder."
Still, the retail prices for heating oil last week appeared to
be all over the place, varying from region to region. New Jersey
saw prices of about $2.50/gal., while Cape Cod, MA, reported prices
of around $2.25 last week. Oil Energy Magazine said average retail
oil prices in New England hit the $2 mark, but moderated last week
to about $1.59/gal. It expects prices to fall even further to about
$1.30/gal., which would be normal for New England.
Even in the Mid-Atlantic states, customers were paying
above-normal retail prices for heating oil. One northern Virginia
dealer last week quoted $1.70/gal. for a minimum delivery of 150
gallons, which typically lasts an average home anywhere from 2-3
weeks to one month during cold weather. That means area heating-oil
customers were paying $255 or more a month to heat their homes,
while gas customers' monthly bills typically were under $100.
States are dealing with the higher prices in their own way. In
New Jersey, for example, natural gas utilities have voluntarily
agreed not to interrupt gas service to their large industrial
customers so as to free up more fuel oil for residential customers.
The state's utilities generally require industrials to make the
switch from gas to fuel oil when temperatures fall below certain
levels. Energy Secretary Richardson also has asked New England LDCs
to take similar steps, said NEGA's Kiley, but it won't have a "very
serious impact on gas demand.....because the reality is that New
England has a relatively small amount of interruptible (IT)
How long New Jersey's utilities, such as PSE&G, will be able
to hold up their part of the agreement will depend on the weather,
said Rosengren. "If the temperatures get to a certain level [in the
20s], some of our [industrial] customers will have to be
interrupted to keep the integrity of the system." But so far,
continuing service to industrial customers hasn't greatly
influenced PS&EG's gas supply, said John Scarlata, general
manager of gas supply operations.
On Capitol Hill, Rep. Joe Barton (R-TX), chairman of the energy
and power subcommittee, said last week he intends to hold a hearing
possibly next month to look into allegations of price gouging in
the market. But he didn't think there was any reason for people to
"jump off the deep end" and clamor for release of oil stocks from
the Strategic Petroleum Reserve (SPR) to mitigate prices and
increase supplies. New Jersey Gov. Whitman has urged the
administration to take this route.