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DOE Studies Need for NE Pipes

DOE Studies Need for NE Pipes

If a new study under way by the Department of Energy (DOE) shows more natural gas pipelines are needed to the Northeast, Secretary Bill Richardson said he will go to Congress to promote the pipes to help reduce the region's historic dependence on higher-priced heating oil.

Speaking at a summit on price spikes in the heating oil market last week, Richardson said the DOE will report to President Clinton in 60 days on ways to reduce the Northeast's reliance on heating oil, placing special emphasis on improving access to gas supplies. "If gas pipelines are needed, we are prepared to go to Congress and work [with] them," he told a Boston crowd last Wednesday.

"They feel this is a crisis situation [with heating oil prices] and so they're using the power of their office and the Clinton administration to make that one of the strong recommendations," Tom Kiley, president of the New England Gas Association (NEGA), said in an interview with NGI.

But some question whether escalating heating oil prices are enough to justify spending billions of dollars on new pipelines to the Northeast.

Whether Richardson and the Clinton administration can hasten the certificate process for the big Northeast gas pipeline projects that currently are on ice at FERC --- Independence Pipeline, SupplyLink. MarketLink and the Millennium Pipeline --- remains to be seen. The Commission has conditionally approved the first three projects, but is withholding their certificates until further market demand can be demonstrated. Millennium still is awaiting final environmental review.

The New England region, which has been heavily dependent on heating oil due to the lack of access to gas pipes in the past, especially is feeling the pain of higher prices. "Interstate natural gas pipelines were late in reaching New England.....They didn't reach here until the early, mid-1950s. And then when they did, they were capacity constrained. That's no longer the case. The gas companies are aggressively going after heating oil customers and converting them," Kiley said. But converting heating oil customers to gas isn't something that can be done overnight.

With five interstates now serving the region, "the pipeline infrastructure in New England is satisfactory, [but] there's room for expansion," he noted. "The new pipelines, such as Maritimes and Portland Natural Gas Transmission System, .....can be expanded with the addition of compression based on customer usage." He also believes the Atlantic LNG project of Distrigas of Massachusetts Corp. "strengthens the industry" in the region.

As retail prices for No. 2 heating oil reportedly were hitting or exceeding $2/gal. in some parts of Northeast, a number of heating-oil customers had decided that natural gas was looking better and better to them.

Although this winter's price spike isn't expected to immediately translate into greater gas demand in the region, Northeast gas distributors said more heating oil customers are choosing to convert to natural gas service for next winter because of the stability of the commodity's price and deliverability. In New England specifically, LDCs "are experiencing a significant increase in requests for conversions from heating oil to natural gas," NEGA's Kiley said.

Gas Conversions Double in Boston

While the price for heating oil has been volatile this winter, "the price for gas [at the burner-tip] was almost exactly the same as it was last year" for Bay State Gas customers, said Carol Churchill, a spokeswoman for the utility, which serves slightly more than 300,000 gas customers in parts of Massachusetts, New Hampshire and Maine. And even though gas demand during the January cold snap set a new daily record for the utility (460 MMcf on Jan. 17), Bay State was able to meet its customers needs, she said, in touting the benefits of gas over heating oil.

Boston Gas told a similar story. "The benefits [of high heating oil prices] to the gas companies, ours in particular, is that over the last three years, even when oil had a price advantage, we had about 3,500 residents come on line --- about half of which were conversions from oil," said Michael Connors, a spokesman for Boston Gas, which has about 740,000 gas customers in central and eastern Massachusetts. So far this year, requests to Boston Gas for conversion to natural gas have doubled over last year, Connors told NGI.

In New Jersey, where Gov. Christine Whitman has taken aggressive steps to moderate heating oil prices, utilities also anticipate more requests for conversions from residential and business customers. "A lot of these decisions are made at the end of the heating season. Will the high price spike and the instability of oil factor into these decisions? Absolutely," said Paul Rosengren, a spokesman for Public Service Electric and Gas (PSE&G).

Joseph Alba, product manager of gas throughput with PSE&G Service, believes higher heating oil prices will provide the "acceleration factor" to customers, who own older heating-oil units, and are on the "cusp" of deciding whether to stay with heating oil or switch to gas. Accelerating the decisions of industrial and commercial customers to switch are the stiffer environmental laws and regulations. Companies are opting for natural gas rather than running "the risk of getting fined," he said.

But gas conversions in New Jersey are at a "fairly high saturation [point]," Alba said, so any campaign by PSE&G to attract heating oil customers would be incremental and targeted. "We've really dug very deeply into the gas market" in the state.

Likewise, KeySpan Energy said gas conversions in the New York boroughs it serves are at a "high saturation rate," but that's not the case in Long Island --- where only an estimated 28% of households have natural gas. "The Long Island market is experiencing record levels of conversions from oil to gas heat," said David Manning, senior vice president. In 1999 alone, KeySpan acquired 10,000 gas customers from conversions and new construction. He believes new pipelines to the Northeast will be needed to meet this growing demand.

He estimated the rate of oil-to-gas conversions on Long Island has nearly doubled since subsidiary Brooklyn Union Gas merged with Long Island Lighting in May 1998. And inquiries from homeowners this winter about conversion to gas are up 37% for the company, he said. KeySpan serves 1.1 million gas customers in the New York boroughs and about half a million customers in Long Island.

"I would think the gas utilities will have a lot more inquiries [for conversions] during the off-season," agreed Tim Evans, senior energy analyst for Pegasus Econometric Group.

Gas Users Save a Bundle

New Englanders have depended on heating oil to heat their homes over the years, even though natural gas historically has had a price advantage, Evans noted. For instance, the New York Harbor price for No. 2 heating oil was the equivalent of $5.56/MMcf last Wednesday, while the New York citygate for gas averaged about $3.91/MMcf, he said.

Evans believes the worst is over with heating oil prices. He said the wholesale price for No. 2 heating oil peaked at $1.80 per gallon, which equates to $13/MMcf, on Jan. 21. Since then, wholesale prices have fallen by more than a $1 to rest at around 75 cents last week. The price drop is partly due to the fact that "there is talk about import shipments [of heating oil] due to arrive soon and the weather has turned milder."

Still, the retail prices for heating oil last week appeared to be all over the place, varying from region to region. New Jersey saw prices of about $2.50/gal., while Cape Cod, MA, reported prices of around $2.25 last week. Oil Energy Magazine said average retail oil prices in New England hit the $2 mark, but moderated last week to about $1.59/gal. It expects prices to fall even further to about $1.30/gal., which would be normal for New England.

Even in the Mid-Atlantic states, customers were paying above-normal retail prices for heating oil. One northern Virginia dealer last week quoted $1.70/gal. for a minimum delivery of 150 gallons, which typically lasts an average home anywhere from 2-3 weeks to one month during cold weather. That means area heating-oil customers were paying $255 or more a month to heat their homes, while gas customers' monthly bills typically were under $100.

States are dealing with the higher prices in their own way. In New Jersey, for example, natural gas utilities have voluntarily agreed not to interrupt gas service to their large industrial customers so as to free up more fuel oil for residential customers. The state's utilities generally require industrials to make the switch from gas to fuel oil when temperatures fall below certain levels. Energy Secretary Richardson also has asked New England LDCs to take similar steps, said NEGA's Kiley, but it won't have a "very serious impact on gas demand.....because the reality is that New England has a relatively small amount of interruptible (IT) customers."

How long New Jersey's utilities, such as PSE&G, will be able to hold up their part of the agreement will depend on the weather, said Rosengren. "If the temperatures get to a certain level [in the 20s], some of our [industrial] customers will have to be interrupted to keep the integrity of the system." But so far, continuing service to industrial customers hasn't greatly influenced PS&EG's gas supply, said John Scarlata, general manager of gas supply operations.

On Capitol Hill, Rep. Joe Barton (R-TX), chairman of the energy and power subcommittee, said last week he intends to hold a hearing possibly next month to look into allegations of price gouging in the market. But he didn't think there was any reason for people to "jump off the deep end" and clamor for release of oil stocks from the Strategic Petroleum Reserve (SPR) to mitigate prices and increase supplies. New Jersey Gov. Whitman has urged the administration to take this route.

Susan Parker

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