FERC staff concluded in a new report that construction of additional gas pipeline and liquefied natural gas (LNG) import capacity will be necessary for New England to meet its growing gas supply needs through 2010.

The “New England Natural Gas Infrastructure Study,” which was required by the Pipeline Safety Improvement Act of 2002, noted that rising regional gas demand is expected to push pipelines to load factors well in excess of 90% of capacity during peak demand periods this winter. “New England pipeline load factors have been quite large during peak load, December through February,” staff told the full commission during a presentation.

Such high load factors, while not uncommon in the industry, do limit access to bulk gas storage facilities, which are located outside New England region and far from regional demand centers, staff noted.

Meanwhile, gas use in New England continues to grow. While residential, commercial and industrial gas demand have remained relatively flat, demand from gas-fired power generation has risen significantly, particularly from 1999 through 2002. The strong growth should be ending this year because regional power reserves have jumped to 22%. “Until that falls, little new capacity will be added,” staff said. “Between now and 2010, generation capacity is expected to increase only marginally.”

Nevertheless, by 2006 staff believes the region will need additional gas infrastructure and supply sources. Staff expects that several projects currently in the works will provide that needed supply security. In particular, Tractebel is in the process of expanding its existing LNG terminal in Everett, MA. KeySpan also has proposed converting its LNG storage facility in Providence, RI, into an import terminal by 2005. There are a number of proposed pipeline expansions, including the Freedom Trails project and Yankee Gas’ plan to link its pipelines with Algonquin LNG’s storage plant. There also are several competing LNG terminals in New England, including the Weaver’s Cove project, which already has started a FERC permitting process.

Staff said at least three of these LNG projects probably will be needed, including the Tractebel and KeySpan projects and at least one additional new LNG terminal. In the meantime, LNG peak shaving projects could provide a quick infrastructure benefit if needed, staff noted. Additional pipeline capacity also eventually will be needed to serve New York City.

But perhaps a more pressing need is the level of interruptible contracting by the region’s gas-fired power generators, which are driving most of the gas demand growth in the Northeast. Given the high load factors on pipelines, generators are in danger being cut because many of them use cheaper interruptible contracts for supply and transportation.

About 38% of the region’s power generation is gas-fired and the New England Independent System Operator recently requested that in conducting this study FERC staff also examine the extent of interruptible pipeline contracting by the region’s gas-fired power generators and the potential impact on power reliability of natural gas and supply transportation interruptions.

Staff found that about 61% of the gas purchased by New England power generators is firm supply and about 40% of the pipeline transportation capacity they purchased also is firm. As a result, about 60% of the gas-only power generation in the region could be interrupted.

While would pose a significant problem for the region in an extreme case, staff determined that the ISO could handle it through demand reduction measures and regional power transfers from Canada. Staff said that “even with the loss of all operable gas-only generation, the ISO would have sufficient capacity to meet the power needs of the region.”

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