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FERC Sends Double-Edged Message on NE Pipe Capacity

December 20, 1999
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FERC Sends Double-Edged Message on NE Pipe Capacity

As FERC last week was delivering bad news to the Northeast-bound Independence Pipeline and associated SupplyLink and MarketLink projects, the Commission staff was delivering a report to Capitol Hill that concluded new pipeline capacity may be needed for the region within the next three to five years. It didn't specify how much capacity though (See related story).

It believes additional capacity may be required as early as the 2003 to 2005 time frame, at which point staff estimates daily utilization rates for pipelines in the Northeast are expected to increase to 77.6%. The report said load factors greater than 78% on an annual basis for pipelines in the Northeast quadrant indicate a capacity constraint. The function of Northeast pipelines is different than long-line pipelines from the Gulf or Canada, and as a result the utilization rates are typically much lower (75-78%) in order to service peak-day loads, according to staff. Based on gas demand projections by the Energy Information Administration (EIA), FERC staff sees daily utilization rates possibly shooting up to 97.3% by 2015 without new capacity into the market.

"Staff believes consideration of reliability, changing customer demand profiles, a more dynamic and liquid natural gas market, and the long lead times and high capital costs associated with pipeline construction require the use of the peak-growth scenario" for gas demand and pipeline utilization rates in the Northeast during the 2003-2005 period. It converted EIA's projections for annual gas demand to a daily demand of 11-12 Bcf/d for the region.

The House Appropriations Committee ordered FERC to do the analysis, citing concerns with the "proposed MarketLink expansion project in northern New Jersey." It directed the Commission to provide a 20-year outlook for the number of new pipelines that would be needed to address future capacity in the state.

Staff told the committee that it was virtually impossible to limit the scope of the analysis to New Jersey alone. "Given the fact that natural gas markets and the interconnected web of pipelines serving those markets do not correspond to political boundaries, it is difficult, if not impossible, to study the issue of future need for natural gas capacity for a specific state, if not region," it said in a 15-page report

Rather, the Commission staff opted to limit the study to the New England states of Maine, New Hampshire, Vermont, Massachusetts, Connecticut and Rhode Island; and the Mid-Atlantic states of New York, New Jersey and Pennsylvania. The EIA has estimated current pipe capacity in the Northeast at 15.3 Bcf/d, and storage withdrawal capacity at about 3.3 Bcf/d.

Staff warned the lawmakers of the dire consequences of being caught with inadequate pipeline capacity. "The costs to consumers and society associated with a lack of capacity to meet demand cannot be rectified in a short period of time due to the long-lead times associated with pipeline construction."

The energy trade associations and other prognosticators have arrived at different projections for the growth in gas demand in the New England and Mid-Atlantic regions, but they all agree the growth will come from electric generation, FERC staff said. Under a maximum scenario, the report has gas demand growing from 3.5 Tcf/year in 2000 to 4.3 Tcf in 2005, to 5 Tcf in 2010 and to 5.4 Tcf in 2015. The minimum projections see gas rising from 3.1 Tcf in 2000 to 3.4 Tcf in 2005, to 3.8 Tcf in 2010 and to 4.2 Tcf by 2015.

In addition to the EIA, FERC staff said it relied on a number of other studies for its analysis, including ones from the Gas Research Institute (GRI), the Interstate Natural Gas Association of America (INGAA), Primark EFA (formerly Wharton Econometrics); and Cambridge Energy Research Associates (CERA).

"The studies agree that the Northeast market will experience significant growth in demand from current levels under all scenarios tested. The studies also agree that all customer groups will at least maintain current consumption levels, and most agree that all customer groups will grow. In addition, [they] agree that the electric power generation market will constitute the single fastest growing segment of the Northeast gas market," the FERC analysis said.

Susan Parker

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