Natural gas pipeline constraints, high international prices and declining production in eastern Canada could all combine to create sometimes volatile New England gas and power prices this winter, according to the Energy Information Administration (EIA).
Prices at the Algonquin Citygate are high because natural gas from the west and south is flowing at or near the capacities of existing pipelines, EIA said in a supplement to its Short-Term Energy Outlook, which was released earlier this month (see Daily GPI, Jan. 9). The Algonquin Gas Transmission system “has run at high utilization…since mid-2012,” according to EIA, which also said the Tennessee Gas Pipeline system into New England has been high this winter.
Also contributing to the relatively high prices are a decline in liquefied natural gas (LNG) shipments to the Boston area and New Brunswick, Canada, brought on by global market conditions — including supply disruptions in Yemen — and a decline in wellhead production from the Sable Offshore Energy Project (SOEP) in Nova Scotia (see Daily GPI, Jan. 16).
SOEP sends on average 80 MMcf/d into New England, down sharply from the 300 MMcf/d it supplied in 2008, according to one Federal Energy Regulatory Commission (FERC) official (see Daily GPI, Nov. 16, 2012). SOEP production “may continue to be curtailed until spring 2013,” when necessary repairs to a subsea flow line can be made. And delays to the start-up of Encana Corp.’s Deep Panuke offshore gas project are also holding down production to New England, EIA said (see Daily GPI, Nov. 19, 2012).
While New England has had the highest average spot natural gas prices in the nation since November, those prices have remained less expensive than those in northwestern Europe, “meaning that it continues to be more attractive to deliver a spot (or unscheduled) cargo of liquefied natural gas to Europe than New England,” EIA said. But recent forward market prices indicate that prices in New England could soon rival northwestern European prices, making New England a more attractive LNG market.
ISO New England Inc. (ISO-NE) recently reported that New England’s reliance on natural gas to fuel power generators “could create operational challenges if natural gas supplies become tight this winter,” which would force the region to turn to oil- coal-fired generation “to lessen any operational risks” to the power system (see Daily GPI, Dec. 5, 2012). The grid operator said in its winter forecast that it expects to have sufficient capacity to meet the region’s demand for electricity, but it is concerned about New England’s reliance on natural gas. Last month ISO-NE asked the FERC to install interim rules for real-time communication with pipelines to help New England power producers get through the winter (see Daily GPI, Nov. 15, 2012).
February is likely to be colder than normal in the Northeast and much of the rest of the country, but warmer-than-normal temperatures are expected to dominate in March and April, according to Weather Services International (see related story).
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