If a new study under way by the Department of Energy (DOE) showsmore natural gas pipelines are needed to the Northeast, SecretaryBill Richardson said he will go to Congress to promote the pipes tohelp reduce the region’s historic dependence on higher-pricedheating oil.

Speaking at a summit on price spikes in the heating oil marketlast week, Richardson said the DOE will report to President Clintonin 60 days on ways to reduce the Northeast’s reliance on heatingoil, placing special emphasis on improving access to gas supplies.”If gas pipelines are needed, we are prepared to go to Congress andwork [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 Clintonadministration to make that one of the strong recommendations,” TomKiley, president of the New England Gas Association (NEGA), said inan interview with NGI.

But some question whether escalating heating oil prices areenough to justify spending billions of dollars on new pipelines tothe Northeast.

Whether Richardson and the Clinton administration can hasten thecertificate process for the big Northeast gas pipeline projectsthat currently are on ice at FERC — Independence Pipeline,SupplyLink. MarketLink and the Millennium Pipeline — remains tobe seen. The Commission has conditionally approved the first threeprojects, but is withholding their certificates until furthermarket demand can be demonstrated. Millennium still is awaitingfinal environmental review.

The New England region, which has been heavily dependent onheating oil due to the lack of access to gas pipes in the past,especially is feeling the pain of higher prices. “Interstatenatural gas pipelines were late in reaching New England…..Theydidn’t reach here until the early, mid-1950s. And then when theydid, they were capacity constrained. That’s no longer the case. Thegas companies are aggressively going after heating oil customersand converting them,” Kiley said. But converting heating oilcustomers to gas isn’t something that can be done overnight.

With five interstates now serving the region, “the pipelineinfrastructure in New England is satisfactory, [but] there’s roomfor expansion,” he noted. “The new pipelines, such as Maritimes andPortland Natural Gas Transmission System, …..can be expanded withthe addition of compression based on customer usage.” He alsobelieves the Atlantic LNG project of Distrigas of MassachusettsCorp. “strengthens the industry” in the region.

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

Although this winter’s price spike isn’t expected to immediatelytranslate into greater gas demand in the region, Northeast gasdistributors said more heating oil customers are choosing toconvert to natural gas service for next winter because of thestability of the commodity’s price and deliverability. In NewEngland specifically, LDCs “are experiencing a significant increasein 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 sameas it was last year” for Bay State Gas customers, said CarolChurchill, a spokeswoman for the utility, which serves slightlymore than 300,000 gas customers in parts of Massachusetts, NewHampshire and Maine. And even though gas demand during the Januarycold 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, intouting the benefits of gas over heating oil.

Boston Gas told a similar story. “The benefits [of high heatingoil prices] to the gas companies, ours in particular, is that overthe last three years, even when oil had a price advantage, we hadabout 3,500 residents come on line —about half of which wereconversions from oil,” said Michael Connors, a spokesman for BostonGas, which has about 740,000 gas customers in central and easternMassachusetts. So far this year, requests to Boston Gas forconversion to natural gas have doubled over last year, Connors toldNGI.

In New Jersey, where Gov. Christine Whitman has taken aggressivesteps to moderate heating oil prices, utilities also anticipatemore requests for conversions from residential and businesscustomers. “A lot of these decisions are made at the end of theheating season. Will the high price spike and the instability ofoil 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&GService, believes higher heating oil prices will provide the”acceleration factor” to customers, who own older heating-oilunits, and are on the “cusp” of deciding whether to stay withheating oil or switch to gas. Accelerating the decisions ofindustrial and commercial customers to switch are the stifferenvironmental laws and regulations. Companies are opting fornatural gas rather than running “the risk of getting fined,” hesaid.

But gas conversions in New Jersey are at a “fairly highsaturation [point],” Alba said, so any campaign by PSE&G toattract 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 Yorkboroughs it serves are at a “high saturation rate,” but that’s notthe case in Long Island — where only an estimated 28% ofhouseholds have natural gas. “The Long Island market isexperiencing record levels of conversions from oil to gas heat,”said David Manning, senior vice president. In 1999 alone, KeySpanacquired 10,000 gas customers from conversions and newconstruction. He believes new pipelines to the Northeast will beneeded to meet this growing demand.

He estimated the rate of oil-to-gas conversions on Long Islandhas nearly doubled since subsidiary Brooklyn Union Gas merged withLong Island Lighting in May 1998. And inquiries from homeownersthis winter about conversion to gas are up 37% for the company, hesaid. KeySpan serves 1.1 million gas customers in the New Yorkboroughs 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, seniorenergy analyst for Pegasus Econometric Group.

Gas Users Save a Bundle

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

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

Still, the retail prices for heating oil last week appeared tobe all over the place, varying from region to region. New Jerseysaw prices of about $2.50/gal., while Cape Cod, MA, reported pricesof around $2.25 last week. Oil Energy Magazine said average retailoil prices in New England hit the $2 mark, but moderated last weekto 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 payingabove-normal retail prices for heating oil. One northern Virginiadealer last week quoted $1.70/gal. for a minimum delivery of 150gallons, which typically lasts an average home anywhere from 2-3weeks to one month during cold weather. That means area heating-oilcustomers 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. InNew Jersey, for example, natural gas utilities have voluntarilyagreed not to interrupt gas service to their large industrialcustomers so as to free up more fuel oil for residential customers.The state’s utilities generally require industrials to make theswitch from gas to fuel oil when temperatures fall below certainlevels. Energy Secretary Richardson also has asked New England LDCsto take similar steps, said NEGA’s Kiley, but it won’t have a “veryserious impact on gas demand…..because the reality is that NewEngland has a relatively small amount of interruptible (IT)customers.”

How long New Jersey’s utilities, such as PSE&G, will be ableto hold up their part of the agreement will depend on the weather,said Rosengren. “If the temperatures get to a certain level [in the20s], some of our [industrial] customers will have to beinterrupted to keep the integrity of the system.” But so far,continuing service to industrial customers hasn’t greatlyinfluenced PS&EG’s gas supply, said John Scarlata, generalmanager of gas supply operations.

On Capitol Hill, Rep. Joe Barton (R-TX), chairman of the energyand power subcommittee, said last week he intends to hold a hearingpossibly next month to look into allegations of price gouging inthe 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 fromthe Strategic Petroleum Reserve (SPR) to mitigate prices andincrease supplies. New Jersey Gov. Whitman has urged theadministration to take this route.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.