Pipeline constraints and balancing requirements/penalties had something to do with the record high gas prices this winter in the Northeast, but energy consultant Ben Schlesinger also believes inadequate gas market information, particularly regarding peak shaving liquefied natural gas (LNG) capacity, was part of the cause.

“It’s a big mistake,” said Schlesinger, who is president of Bethesda, MD-based Benjamin Schlesinger and Associates Inc. “The $70 prices were unnecessary to bring supply and demand into balance because supply and demand were in balance.

“I think what you were seeing with prices like this may well have been some of the difficulties that traders were having meeting their obligations on pipelines; they were running into some significant balancing penalties. We’ve seen that in the past,” he said.

Algonquin Gas Transmission and Tennessee Gas Pipeline both had 2% balancing tolerances in place on Jan. 14, the day prices rose to highs of more than $70/MMBtu and reached averages exceeding $50 at many points across the Northeast. The pipeline restrictions were effectively operational flow orders, requiring shippers to stay within 2% of their nominated volumes. If shippers violated those provisions, they would have to pay $15/Dth penalties plus the cost of gas, which was extremely high.

Such restrictions could go a long way toward explaining the high prices that day. But Schlesinger believes there was more to it than that.

“Who is really paying that price? I think what we have when we see these ‘gee whiz’ kinds of prices is an extremely thin market for gas at that price,” essentially a couple transactions that are widely discussed and make the morning news, he said.

“I also think traders who push up these prices are either unaware of the fact that there is no shortage, because there is plenty of deliverability at LNG peak shaving plants, or they are not focusing on it,” he said.

According to Schlesinger the participants in the gas market don’t seem to realize that a large percentage of the gas supply on a peak day comes from local LNG tanks.

“The weekly [Energy Information Administration] storage reports are very misleading in my view,” he said. “People trade off them like mad, saying ‘Oh my God we had a huge drawdown.’ It doesn’t matter because LNG peak shaving is not in there. About 50% of Philadelphia Gas Works’ peak day gas supply comes from its LNG plants. In many cases it’s a third of supply on a peak day.”

KeySpan, the Northeast’s largest gas distributor, said it has about 7 Bcf of LNG, which makes up about one-third of its supply on a peak demand day.

“Peak shaving capacity is a major part of the market that is being overlooked,” said Schlesinger.

LNG in peak shaving facilities consists of gas stored locally (rather than imported at terminals) in liquid form. According to NGI’s map and database of Natural Gas Storage and LNG Facilities in the United States and Canada (see https://intelligencepress.com/ancp.html), there are 20 LNG peak shaving facilities in the Northeast with 3.1 Bcf/d of peak sendout capacity and 26.6 Bcf of storage space. In addition there are 24 satellite LNG storage facilities with 601 MMcf/d of sendout capacity and 3.4 Bcf of storage capacity.

Based on a survey of most of the companies with LNG peak shaving facilities (16) in the Northeast, Schlesinger found that about 1.3 Bcf of peak shaving LNG was delivered as vaporized gas on Jan. 15 and it met about 14% of peak day gas demand.

“All told, the 16 LNG plants included in the survey could have supplied 2.2 Bcf/d, almost twice the volume they shipped during January 2004 peak days,” Schlesinger said. “Unlike underground storage, LNG in tanks can be vaporized and used quickly, thus it is a crucial complement to other gas supply sources.”

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