It may be time for all the critics of the proposed Independence,MarketLink and Millennium expansions to pipe down. Transportationto the Northeast market from the Gulf of Mexico rocketed to$16.50/MMBtu yesterday. Gas prices at the New York City Gate onTranscontinental Gas Pipe Line jumped as high as $19/MMBtu whileHenry Hub spot prices languished in the $2.50s. Deliverabilityclearly is not as rosy as many industry experts once thought.

“For the first time in three years we are finally seeing thevalue of pipeline capacity,” said Jeff DuBois, director of gassupply and off-system sales for Folsom, NJ-based South Jersey Gas.”It’s been depressed for three years and now all of a sudden everydrop of space is needed to serve the markets in the Northeast alongwith any other peak shaving supplies people can come up with.

“What’s funny is during this whole period the price of gas inthe 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 pipelinecapacity.”

Single digit temperatures this week have triggered peak gasdemand records throughout the Northeast region. Philadelphia-basedPeco Energy reported a new record sendout of 718 MMcf/d — 16%greater than the previous record day six years ago, Jan. 20, whichshows just how long winter has been away in the Northeast. PECOreached the record Monday when temperatures peaked at only 16degrees, and the frigid, extreme cold returns today when anotherpeak is expected to be set.

Pittsburg, MA-based Berkshire Gas also broke a sendout recordMonday and Tuesday when temperatures dipped to minus 2 degreesFahrenheit. The company’s last daily sendout record of 45,813 Mcf,set in February 1995, was surpassed Tuesday morning with a 24-hourgas sendout of 53,053 Mcf. During an average winter day, gassendout would normally peak at 35,000 Mcf.

“This is…further testament to the load growth that we haverealized in recent years and the performance that can be expectedduring normal winter weather,” said Berkshire Gas President and COORobert M. Allessio. “For several years now, we have beenhandicapped by warmer than normal weather and, while the early partof this winter was also warmer than normal, we are encouraged byrecent weather trends and the outlook for the remainder of theheating season.” Berkshire provides gas service to 34,000 customersin western Massachusetts.

South Jersey, which serves 271,000 customers in the state, had arecord peak Monday of 387,792 Dth. “We’re looking at projectedsendouts Friday of about 413,000 Dth,” said DuBois. “We should beable to make that, but we don’t have a lot of capability beyondthat,” he admitted.

“The Northeast hasn’t really been tested for at least threewinters now and yet the customer base, especially in our territory,continues to grow.” A South Jersey spokesman said residential gasdemand has growth nearly 3% year over the past three years andcontinues at that pace.

“This LDC is served by only two pipelines directly, Transco andColumbia, and both of those pipes are fully subscribed so there’sno growth that’s going to come out of those. You end up with somereal heavy reliance on, for one thing, your LNG supply in your ownterritory, which is what we’ve been utilizing this past peak day onMonday and we are going to utilize it again on Friday I’m sure,”said DuBois. “I think it’s a real issue going forward as the marketarea keeps growing that there’s going to be the need for additionalpipeline capacity coming into the area.”

However, South Jersey, like the other New Jersey utilities andLDCs in a couple other Northeastern states, is facing a dilemmaregarding new firm capacity because of systemwide customer choice.”When it comes time to subscribe, who is going to be the party thatbellies up.”

Statewide customer choice has just begun in New Jersey andmarketers are not required to use utilities’ upstream firmcapacity. DuBois indicated the LDC was not willing to step forwardand sign up for capacity on Transco’s proposed MarketLink projector the Independence expansion because of deregulation.

“The LDC doesn’t really know what its role is going to be in thefuture so we become very hesitant to sign into these projects thatrequire such long term commitments. We’re constantly evaluating a10-year window as to what our growth is projected to be in ourterritory. We have been able to meet it for this winter and expectto do so next winter through the acquisition of peaking supplies orother types of service like our LNG. Out on the horizon thoughthere has to be some incremental capacity in order to serve thecustomer needs. But I guess you end up in a regulatory battle overwhether you can recover those costs if you go out and acquire thosenew supplies.

“It will get to a point where either a marketing company isgoing to go out and subscribe to something like MarketLink or anLDC is going to have to do it.” At this point, it’s unclear whetherit will take a serious delivery failure to prompt either of thosetwo things to happen. And with FERC demanding strong marketsubscriptions, significant environmental work and thoroughlandowner notification prior to stepping in the Commission door,the delivery system could face a test in the near future.

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