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Northeast LDCs Try to Include Marcellus in Portfolios

Although the development of the Marcellus Shale promises to bring a bounty of natural gas to the marketplace, officials with local distribution companies (LDC) in the Northeast told attendees at Platts' Appalachian Oil and Gas Conference in Pittsburgh on Monday that portfolio management was still a tricky business.

Stephen McCauley, director of origination and price volatility for National Grid USA Service Company Inc., said reliability was his company's first priority.

"When we look at a supply portfolio development, the first thing as a utility is we have to meet our customers’ needs," McCauley said. "That's why having a diversified portfolio is very important.

"Early on, it was very easy to get supplies and capacity from the Gulf Coast and move it up, but that's changed. We now have to balance the mix between long-haul capacity, storage, LNG [liquefied natural gas] and try to diversify our supply from all over the United States."

But according to McCauley, the LDC is still "very highly reliant" on LNG being imported through the port in Boston. On a peak day in Massachusetts, National Grid uses LNG to meet 42% of its needs.

"What this means is that on those really cold days there really isn't a lot of excess capacity coming from the Marcellus up into the New England area," McCauley said.

John Rudiak, senior director of energy supply for Connecticut Natural Gas Corp. and Southern Connecticut Gas Co., acknowledged that there had been some minor changes -- i.e., scheduling and bidding -- in solving the gas-electricity generation riddle in the Northeast, but he said nothing significant had been changed to achieve a long-term solution.

"The electric industry is operating in a model that is very different than the gas industry," Rudiak said. "There's no use to debate which is better, but the electric models seem to be very short term-oriented and are having a very difficult time transitioning to a long-term type of model that would value the reliability [that natural gas could bring from] long-term contacts."

Rudiak added that the electric industry "works through a very organized, highly structured committee process, and stakeholders have very different views of some of these very contentious issues."

"The major point, as this relates to Appalachian gas, is that the gas-electric issue in the New England area is really stymied at this point. What that will mean is that there's not going to be gas capacity built for generators into the region, and that will not allow some of the Marcellus gas to flow into the region because there are constraints in terms of capacity, so the electric industry will probably continue, for the foreseeable future, to rely on interruptible capacity and not sign any long-term contracts."

But Rudiak said that in Connecticut, regulatory commissions have not been exerting any influence on LDCs, such as encouraging them to sign long-term contracts to take advantage of low-cost supplies such as those from the Marcellus.

"I think the perception and the forecast that everybody sees that are public -- such as the EIA's [Energy Information Administration] Outlook -- are really predicting relatively low prices for the foreseeable future," Rudiak said. "That's the reason why there's not a great emphasis [on switching]. In fact, end-users are hedging to a lesser degree at this point than they have in the past."

Peter Carnavos, gas supply director for Consolidated Edison Co.of New York Inc., concurred.

"From a regulatory perspective, very early in the conversation we were asked when we were going to give up our capacity contracts in the Gulf [of Mexico]," Carnavos said. "There was a recognition that wasn't necessarily a good idea because maintaining a diversified portfolio is advantageous to consumers. Having diversified supply sources is important because the markets change so dramatically, and they could change again in the foreseeable future.

"So we're continuing to emphasize having a diversified view of the world, maintaining a connection to as many supply areas as possible. It makes a lot of sense, and our regulator understands that."

During his remarks, Carnavos said he was enthusiastic about the 30% increase in capacity coming to New York on Friday, the day Texas Eastern Transmission (Tetco) will bring 1 million Dth/d of capacity online through its NJ-NY Expansion Project (800,000 Dth/d), and its Northeast Supply Project (200,000 Dth/d) (see Shale Daily, Oct. 18).

"It's a national holiday as far I'm concerned in the New York metropolitan area," Carnavos said. "We're talking about a 30% increase in capacity. That's substantial in terms of what effect that's going to have on the market, access to supply, and the ability for [the markets] to believe in natural gas' position for growth in the future.

"Things will not be the same. We're going to enter a period of transition and change. Obviously there will be growing pains, but it's good news for the market place."

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