DOE Urges Speedier Pipe Certificate Process
Recognizing the inevitability of heightened gas demand from the
Northeast generation market over the next 20 years, a Department of
Energy (DOE) study released last week calls for an acceleration of
the FERC certificate process to pave the way for more gas pipeline
and storage capacity to the region to help reduce its singular
dependence on home heating oil and to avoid recurrences of last
winter's heating oil price spikes.
The study, which was conducted jointly by DOE's Energy
Information Administration (EIA) and Office of Policy, did not
blame FERC for the drawn-out process, but rather pointed the finger
at other federal agencies whose "inputs to the determination
process are often not provided expeditiously." As a result, the
Commission "is...not provided the information and notifications of
permit decisions that allow it to finish deliberations quickly."
The two DOE agencies proposed that the White House Council on
Environmental Quality and the National Economic Council undertake
an initiative, which would involve the Commission and various
federal agencies (the Fish and Wildlife Service, Advisory Council
of Historic Preservation and Bureau of Land Management, for
example), to establish guidelines for completing certification of
pipelines and storage projects in a quicker fashion.
This was one of a number of long-term initiatives that the DOE
recommended the federal government take to expand the energy mix of
the Northeast, lessening the region's historical reliance on
heating fuel and its vulnerability to price spikes. DOE also
proposed initiatives to encourage the use of other forms of energy,
such as distributed generation and renewable fuels.
President Clinton commissioned the study following the
escalation in heating oil prices during last January's cold snap in
the Northeast, which for the purpose of the study includes the New
England and Mid-Atlantic states and Washington D.C.
Part of the blame for the high fuel prices was pinned on
Northeast industrial customers with dual-fuel capability, whose gas
service was interrupted by LDCs when temperatures plunged last
winter, forcing them to turn to heating oil to fuel their
facilities. Residential customers were irate that this practice had
deprived them of reasonably priced fuel.
But the study, titled "The Northeastern Heating Fuel Market:
Assessment and Options," concluded that it was "likely that prices
would have risen sharply even without the additional demand as
other [dual-fuel] customers switched from natural gas." In fact, it
said the bulk of the demand surge last winter in the Northeast
distillate markets, which includes heating oil, "seems to have been
a weather-induced increase involving the regular customer base."
Therefore, while an end to fuel-switching by Northeast industrial
customers "could mitigate" the potential for distillate price
spikes, "it cannot eliminate their possibility" entirely, according
to the DOE study.
The joint study follows an EIA report in May, which similarly
concluded that requiring industrial users to switch from distillate
oil to natural gas year-round would not shield the region's energy
customers from a repeat of heating oil price shocks. Given the
volatility of gas prices this year, both DOE studies also agreed
that wide-scale conversions from heating oil to gas would be
economically unwise for all classes of consumers.
Moreover, the joint EIA-Policy report contends that if the
entire manufacturing and utility sectors in the Northeast converted
from distillate fuel to natural gas or another energy form, they
would only free up 13.6 million barrels of distillate for the
residential market. Combined, it noted that Northeast industrial
and generation customers consumed less than 10% of the Northeast'
distillate demand in 1997. As a result, the DOE said the complete
conversion of "distillate fuel use to other fuels, particularly to
natural gas, is infeasible and probably unnecessary..."
DOE's recommendation to streamline the FERC certificate process
was intended primarily for the benefit of future pipeline projects.
For now, it said "pipeline capacity in many parts of the Northeast
is adequate to meet current firm service demand..." It estimated
the current design capacity of all the pipes serving the region is
4.57 Tcf/year, "well in excess" of the region's total capacity
consumption of 2.9 Tcf in 1998. And if all the proposed pipelines
to the Northeast are built, which isn't likely, the report
estimated 5.9 Bcf/d (2.2 Tcf/year) of capacity would be added.
The DOE did concede there are some capacity-related trouble
spots or potential trouble spots on the Northeast pipeline system:
New York City, the Leidy Hub area in Pennsylvania, northern New
Jersey and the Boston metropolitan area.
In addition to accelerating the certificate process, the study
proposed that joint federal/state studies of regional gas storage
opportunities be undertaken, with special focus given to lined-rock
caverns (LRCs). Such caverns store gas "in a manner similar to salt
cavern storage, but [they] can be located in areas of the United
States where salt caverns and conventional underground reservoirs
are not present, including the Northeast." The nearest storage
facilities for the Northeast are located in New York and
As a long-term measure, the DOE said it will conduct a detailed,
independent technical review of the LRC concept at specific sites
where LRC storage facilities are planned. "DOE's LRC data and
analysis would be valuable to federal and state regulators
reviewing proposed projects," the study noted.
The DOE agencies further proposed exploring options that would
make conversion/hookup costs for natural gas utilities nontaxable,
as they are for electric utilities. Because such costs are
considered taxable income now, "gas utilities are passing this tax
obligation on to their new customers. As a result,
customers.....pay a higher cost for connection" to gas service,
they said. Gas LDCs estimate their conversions costs have risen by
30-50% as a result of the unfavorable tax treatment, with large
industrial customers paying as much as $1 million per hookup.
Furthermore, the study recommended taking steps to ease the way
for increased shipments of liquefied natural gas (LNG) into Boston
Harbor, where Distrigas Corp. receives and stores much of its LNG
imports. Distrigas plans to double its LNG imports from Algeria and
Trinidad over the next few years to meet the demand of electric
"DOE will work closely with the Department of Transportation
[and] U.S. Coast Guard to facilitate its review of [a] proposal to
increase deliveries of LNG to Boston," the study said. But there
will be a price to pay - "increasing LNG tanker traffic will reduce
the times, under current Coast Guard rules and practices, when
distillate deliveries can be made."
The DOE agencies further said the department was "seriously
reviewing a process to implement" a recommendation in the National
Petroleum Council study, which was released in December 1999, that
called for an Interagency Work Group on Natural Gas to be
established as part of the National Economic Council. The objective
of the group would be to create a "balanced, long-term approach for
responsibly developing the nation's natural gas resource base."
Given that New England relies heavily on Canadian gas, the DOE
also recommended that the U.S. and Canada renew their former
practice of meeting annually. "To improve understanding about [the]
natural gas market, regulatory and trade issues, the administration
proposes that DOE and its Canadian counterparts, the National
Energy Board of Canada and the Department of Natural Resources
Canada, should resume regular annual meetings."
The Clinton administration already has taken some steps to
protect Northeast customers from more price spikes next winter. It
is in the process of creating a two-million-barrel home heating oil
reserve in the Northeast as part of the existing Strategic
Petroleum Reserve, and it has re-established DOE's Energy Emergency
Office to "enhance [the] communication and readiness" of the
federal government, states and industry to deal with energy
emergencies. The administration also has requested advanced funding
to assist low-income households with their energy bills in 2001 and
2002. At their fall conference, the EIA and the National
Association of State Energy Offices "will highlight the winter
fuels outlook for the Northeast," the study noted. Lastly, the U.S.
Army Corps of Engineers will assess the need to dredge and deepen
ports in the New England region to allow larger ships carrying
distillate fuel to dock and unload their supplies.