New England paid some of the highest natural gas prices on record last year amid pipeline constraints and stronger competition for LNG.

Daily spot natural gas prices at Algonquin Citygate near Boston peaked last year at $34.900/MMBtu in December, according to NGI data, and were higher than benchmarks in both Asia and Europe at that time. Average prices at Algonquin Citygate last year were $8.880, or nearly double the $4.470 in the prior year, according to NGI data. The region is the only one in the United States that has to import liquefied natural gas for power generation and heating, particularly during cold snaps. 

“New England pays some of the highest energy prices in the country,” and competes for LNG in a tight global market, said Poten & Partners’ Jason Feer, global head of business intelligence. “Basically this region lacks pipeline capacity to provide supply during cold weather, so LNG imports must fill the gap.”

Global LNG and gas prices skyrocketed in 2022, hitting record highs when Europe scrambled to replace Russian gas imports after the Kremlin cut deliveries in response to western sanctions for its invasion of Ukraine. Feer told NGI that New England will have to compete with Europe for LNG supply, but that has not been a problem so far this winter due to relatively warm weather in Europe.

The region’s LNG imports are delivered to Exelon Corp.’s Everett terminal in the Boston Harbor, to Excelerate Energy Inc.’s offshore Northeast Gateway in Massachusetts Bay and to Repsol SA’s Saint John LNG facility in New Brunswick, Canada. 

Between December 2021 and November 2022, Everett and Northeast Gateway imported 22.4 Bcf of LNG at a weighted average price of $27.51/MMBtu, according to the U.S. Department of Energy. Over the same time between 2020 and 2021, the facilities took in 25.3 Bcf, but the weighted average price was just $9.16.

Spiking Power Prices

National Grid plc, and other utilities in Massachusetts, procure electricity from generators and pass “that cost to customers without mark-up or profit – so customers pay what we pay,” said National Grid spokesperson John Lamontagne.

“Under procedures by the [Massachusetts] Department of Public Utilities established 20 years ago. National Grid procures electricity twice a year – in November and May, Lamontagne told NGI, “and during that 20-year period, the procurement process worked well for customers, as gas prices remained relatively low.”  

But wholesale day-ahead electricity prices in New England jumped last year as the daily average price rose above $100/MWh 25 times in January 2022,  according to the Energy Information Administration (EIA).

Now “with the global energy prices spiking, especially gas” Lamontagne pointed out, “ it is time to review this process to determine what we utilities can do to procure electricity for customers at the most affordable cost.”

New England lacks underground gas storage and pipelines are constrained as efforts to build more infrastructure in the region have been stymied by governments and environmental opponents in recent years. 

But the region still relies heavily on natural gas for its energy needs, especially during the winter season, when demand can spike and exceed the volume of gas that regional pipeline infrastructure can deliver. On peak demand days, LNG contributes up to 35% of the region’s gas supply. 

“Natural gas is the predominant fuel source for electricity generation in New England, and as such, prices for gas will affect wholesale electricity prices,” said Matt Kakley, a spokesperson for the Independent System Operator of New England (ISO-NE). “As prices have risen for both pipeline gas and LNG, we have seen corresponding increases in electricity prices.” 

Kakley told NGI that the New England grid operator and others “have identified the region’s reliance on LNG as something that needs to be secured and stabilized in the short-term, and reduced in the long term.” 

Everett LNG reportedly has a long-term supply contract for 29 Bcf annually through 2024, but the “future of the Everett LNG facility remains unclear with the retirement of Mystic in June 2024,” ISO-NE said in a note last summer, referring to Exelon’s power plant, which helps recover costs at the Everett terminal. 

“Until significant new LNG supplies come online by 2025 and beyond for most new capacity, the region may have to compete for supply during periods of peak demand in the winter periods,” Feer said when asked how long-term contracts can mitigate price risk in New England. 

An average U.S. residential customer is forecast to pay 14.82/KWh for electricity in 1Q2023, according to the EIA. In New England, customers are expected to pay 27.82/KWh for the same period.

Feer said that while there are no easy solutions for New England, the best would be to build additional pipelines to carry more supplies from the Appalachian Basin, where production is currently above 35 Bcf/d.

“But New England states are famous for their opposition to new pipelines and energy infrastructure,” he added. “The region is densely populated and locals just have very little interest in new pipelines.”

Another solution would be to exempt New England from the Jones Act to allow deliveries of LNG from one U.S. port to another.

The Jones Act requires any goods delivered between U.S. ports to be transported on U.S. ships, but there are no U.S. flagged LNG carriers. Requests in the past for exemptions have been rejected by the federal government, leaving New England no alternative but to rely on LNG imports.