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Report: Subsidized NatGas Pipeline in New England Unnecessary, Expensive

Competition is fierce to serve the undersupplied New England market and a new report, commissioned by LNG supplier GDF Suez North America, called a proposal to fund additional gas pipeline capacity in New England through an electricity ratepayer system "an expensive and dangerous proposition."

In an 86-page report, "Analysis of Winter Reliability Solutions for New England Energy Markets," analysts with Energyzt Advisors LLC studied market conditions in New England after the record-breaking winter of 2014-2015 and dismissed claims that the reliability of natural gas and electricity in the region are at risk.

The report is billed as an independent report, but it is funded by GDF, the largest supplier of liquefied natural gas (LNG) to North America delivered directly into New England. The company has signed several long-term contracts with utilities for LNG imports, which come through its import terminal in Everett, MA.

"In competitive energy markets, such as those that exist in New England, high prices generally indicate a shortage of supply for given demand levels," the Energyzt analysts said. "In keeping with this assumption, certain market participants have advocated for extraordinary government intervention to mandate regulated electric ratepayer funding of a new natural gas pipeline, implicitly claiming that high prices are signaling a shortage of pipeline delivery capability and a failure of the market to respond appropriately. Some have gone as far as to claim that New England gas and electric reliability are at risk. These claims are unsupported."

The analysts said existing infrastructure in New England is more than adequate to handle the region's natural gas needs, and several pipeline expansions were already under way. They added that the electricity system in the region has been able to maintain the required reserve margins during the last three winters, which were all particularly harsh.

The analysts dismissed the exorbitant winter prices during the winters of 2012-2013 and 2013-2014 as reflecting a transient peaking problem coupled with a lack of commercial arrangements with existing infrastructure.

"The issue is not lack of infrastructure but insufficient commercial contracts to access existing energy," they said.

Another mitigating factor going forward, according to the analysts, are dual-fuel generating units. Units providing up to 6,000 MW using 700 to 900 MMcf/d of gas, which can be replaced by fuel oil, have been recommissioned. In addition gas distribution companies have entered into new long-term contracts for LNG imports.

"As a result, realized basis differentials this past winter were roughly half of what they were in the winter of 2013-2014 and are expected to reduce even further as existing infrastructure is contracted and otherwise made available," the analysts said.

The report also cited the Atlantic Bridge Project, Spectra Energy's Algonquin Incremental Market (AIM) Project, and other expansions that collectively are expected to increase pipeline delivery capacity to New England by around 600 MMcf/d by the winter of 2017-2018 (see Shale DailyJune 20, 2014July 10, 2013). "This new pipeline capacity needs to be included in any assessment of costs and benefits of an additional pipeline."

The analysts said public policy does not support new pipeline infrastructure subsidized by electric ratepayers.

"Federal and state policies are promoting non-gas-fired generation such as renewables, low load growth from energy efficiency and demand response, and market-based performance incentives in New England competitive capacity markets," the analysts said. "Emerging technologies such as distributed generation and battery storage are likely to further moderate peak demand. Government intervention to build a new gas pipeline to supply future natural gas demand from the power sector is inconsistent with these programs."

The analysts predicted that a new pipeline "will overserve the New England market, resulting in a glut of natural gas throughout the year that is likely to flow to markets outside of New England into Canada and overseas.” This would mean New England ratepayers were paying for the cost of building a new pipeline for twelve months of the year, and reselling back unused capacity at a lower rate for at least nine months to natural gas shippers selling into other markets.

From Everett, GDF supplies LNG via tanker truck by a third party to utilities and 47 above-ground storage tanks throughout New England (see Daily GPI, Oct. 8, 2014). More than 90% of the LNG it imports comes from Trinidad & Tobago, with some cargoes also arriving from Yemen.

Last May, Distrigas of Massachusetts LLC, a GDF affiliate, said it had struck long-term agreements to sell about 9.5 Bcf of LNG to New England local distribution companies for peak demand needs during the upcoming winter and beyond (see Daily GPI, May 11).

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