Consolidated Edison Co. (Con Ed) of New York is projecting natural gas demand from utility conversions will grow 3.5% through 2017, requiring substantial new pipeline capacity to be up and running, according to the director of the utility's gas supply.
Peter Carnavos spoke on Tuesday at Bentek Energy's Benposium in Houston. The growth in utility gas demand follows a law implemented last year in New York City, a "clean heat" campaign, which phases out the use of fuel oil to reduce air polluting greenhouse gas emissions. It requires existing boilers by 2015 to upgrade by using natural gas and/or heating oil grade No. 2 or residential fuel oil No. 4.
More than three-quarters (77%) of the 9,000-plus boilers in Con Ed's New York City territory now burn residential fuel oils No. 4 or No. 6, according to Carnavos. A lot of customers want to convert to natural gas, he told the audience.
Con Ed's new business service requests for oil-to-gas conversions have averaged 125 per month to date this year, compared with a total of 310 in 2011 and 73 in 2010, Carnavos noted.
"We're already seeing a huge backlog of requests to convert to gas," he said. The law "could increase gas demand by 50%" in Con Ed's New York City territory, where it already serves more than 7,000 locations in the gas service area. More than 14,000 multi-family commercial buildings now burning No. 2 oil may opt for converting to gas also.
However, New York City's gas pipeline system, mostly not upgraded since the 1950s, desperately needs to be upgraded to add more capacity and improve reliability.
"We're already short today...We have to go back to the market to meet demand today, and just like we did this past winter and we'll do that until new capacity comes on line."
Con Ed's customers have seen the "price advantage of delivered natural gas versus oil," which offers a 40-50% discount to No. 2 oil, a 35-40% discount to No. 4 oil, and a 20-30% discount to No. 6 oil, said Carnavos. "It gets people's attention..."
The Con Ed executive said customers believe natural gas is here to stay and aren't turned off by the hydraulic fracturing protesters. "Trust me, this is the time...The shale phenomenon has changed the pricing structures, and the rules have changed on demand and supply to some extent. It's changed the consumption in this country. We have all this supply..."
A new gas pipeline, he said, hasn't been built into Manhattan since 1959. "Now it's 2012 and we are we today? We are very optimistic about the opportunities to buy capacity...Lots of projects have been proposed and they are all producer-pushed, but it's got to get to where I can use it. If it creates gas-on-gas competition, I don't care. I care about the customer. But if I can't get it into my system, it doesn't work."
Three projects now on the drawing board are "very important" and have to happen "very soon" for the marketplace, he said. Each have their "own value proposition," and each is producer-driven:
"We have to get gas into the guts of the system," said Carnavos. Because of all the new unconventional gas supplies in the U.S. onshore, "beginning in 2013 and post 2013, a Bcf a day of new firm capacity could be coming into the market. We have the opportunity to support and bring down the volatility and bring down the bottleneck. A greater portion of supply could be coming from the Northeast, ending the punchline and breaking the wall into metro New York."
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