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EEI Sees Potential 5 Bcf/d NE Capacity Shortfall

EEI Sees Potential 5 Bcf/d NE Capacity Shortfall

Pipeline import capacity in the Northeast sub-region could fall shy of natural gas demand by more than 5 Bcf/d by 2010 if no significant capacity additions are constructed during the period, according to a new study by the Edison Electric Institute (EEI) that was released last week. The shortfall is predicatedon existing import capacity in the sub-region remaining fairly constant at 12.4 Bcf/d over the next decade, while the daily winter gas demand for the area expands to about 17.5 Bcf/d.

Interestingly, the major pipeline projects planned for the Northeast sub-region, including Maritimes and Northeast and Portland Gas Transmission, would bring a total of about 3.5 Bcf/d of additional capacity into the market, which would mean that - if the study's winter gas-demand projections for 2010 are on target - there still could be a lingering capacity shortfall even after all the projects are built.

The EEI submitted the study, along with comments, last week to FERC as part of its review of the short- and long-term demand for natural gas and capacity additions in the U.S. Northeast quadrant, which the Commission defined as all states east of the Mississippi River and north of Tennessee and North Carolina [PL99-2]. For the purposes of the study, Resource Data International Inc. (RDI) - which was commissioned by the EEI to do the review - divided the larger Northeast quadrant into three sub-regions: the Northeast, Midwest and New England.

According to the study, gas consumption by electric generators will experience significant growth in the Northeast quadrant, increasing 11% annually between 1998-2010. This compares to expected yearly growth rates of 0.6% and 0.3% in gas demand by industrial and residential/commercial customers, respectively.

On a volume basis, the EEI study anticipates gas demand for electric generation in the entire Northeast quadrant will triple to 2 Tcf/year by 2010 over the current level of 625 Bcf/year, and will more than quadruple to 2.9 Tcf/year by 2020. Three-fourths of the growth is expected to occur in the Northeast sub-region - reaching 1.6 Tcf/year by 2010 and 2.1 Tcf/year by 2020 - due to its increased reliance on combined-cycle technology to serve electric baseloads, it said. The Northeast sub-region encompasses Virginia and Washington D.C. and most of the states north of them along the East Coast.

In contrast, growth in generation-related gas demand in the Midwest sub-region will be "significantly lower" - reaching 501 Bcf/year in 2010 and 795 Bcf/year in 2020. "Through the forecast period, coal should remain the primary fuel source for baseload power production in the Midwest," the study noted. The Midwest sub-region includes Illinois, Indiana, Kentucky, Michigan, Ohio and Wisconsin.

The volumetric gas requirements of electric generators in the Northeast quadrant still will lag behind industrial customers (2.7 Tcf/year) in 2010, but EEI anticipates electric generators will overtake industrials by 2020. Residential/commercial customers are expected to continue to account for the largest chunk of gas demand in the Northeast quadrant market - half of the expected total 9.7 Tcf/year demand in 2010 and half of the anticipated 10.6 Tcf/year demand in 2020.

Underlying the anticipated gas growth are the gas-fired generating capacity additions that are planned for the Northeast quadrant over the next two decades, according to EEI. It estimates 18,000 MWs of gas combined-cycle (CC) units and 39,000 MWs of combustion turbine (CT) capacity will be built by 2010, followed by an additional 27,454 MWs of CC units and 54,146 MWs of CT capacity by 2020. It estimates about 5,000 MWs for the New England subregion are either under construction or have been approved and financed.

EEI said it is concerned that the trend towards gas-fired CC units in the New England sub-region, which would be used to serve baseload generation needs, could put a squeeze on the existing pipeline capacity in the area since the demand will "coincide" with the traditional seasonal heating demand.

The study estimates the average winter gas demand for the entire Northeast quadrant currently is about 34 Bcf/d while current capacity is about 30 Bcf/d, augmented by 38 Bcf/d of storage withdrawal capacity and 6 Bcf/d of LNG peaking supplies.

The EEI report singled out the New England sub-region, saying that it is undergoing a "dramatic transformation" as a large portion of its electric generation base shifts to natural gas. This could put "significant stress" on pipelines, resulting in capacity shortages as early as 2002 if no new "greenfield" projects or expansions are seen, the study said. It estimated that current pipeline capacity in New England was about 2.7 Bcf/d - which is nearly equal to the existing daily gas demand for commercial and industrial customers in the sub-region (between 2.2 and 2.6 Bcf).

New England generators have accounted for only a "small portion" of monthly gas demand in the sub-region over the past years - not exceeding 400 MMcf/d in the summer peak period, and averaging close to 100 MMcf/d during the winter. But the EEI study predicts this is about to change, with gas expected to fuel more than 40% of New England generation by 2010 and about 60% by 2020.

The winter peaks for gas demand by New England generators are forecasted to reach 1 Bcf/d by 2002. When combined with the historic non-generation demand peaks of 2.4 Bcf/d for that market, total peak month gas demand could exceed 3.4 Bcf/d, the study said.

A tight market for pipeline capacity in the New England sub-region will drive the transportation component of gas prices upwards, which will result in higher overall gas prices and higher electricity prices, the EEI study pointed out.

The study authors say they expect gas prices in all regions to climb as the result of the increased role for gas in power generation. In New England specifically, prices are projected to rise to $3/Mcf from $2.50/Mcf by 2010. This scenario assumes that major pipeline projects - such as Alliance Pipeline, Portland Natural Gas Transmission and Maritimes and Northeast - will be built. But if just limited expansions occur in the New England sub-region, gas prices would climb even higher - hitting about $3.25/Mcf in 2010 and about $4.25/Mcf in 2018.

And that won't be good news for electricity, EEI said. "Gas price increases that result from a lack of competition in the pipeline market will be directly transferred to the market clearing price in wholesale electricity markets. This will increase the price of every MW sold throughout the region when gas-fired generation is at the margin."

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