In the wake of spiraling heating oil prices, Commissioner CurtHebert Jr. last week challenged his FERC colleagues to follow inthe Clinton administration’s footsteps to help reduce theNortheast’s dependence on the higher-priced fuel. ATranscontinental Gas Pipe Line official made a similar pitch toremove regulatory roadblocks to new natural gas pipelineconstruction last week at a Senate hearing.

Hebert said several of the measures taken by the Clintonadministration in recent weeks to address the high heating oilprices were “consistent with my own [views], and [I] suggest thatmy colleagues step forward in the same manner.” But while Hebertcommended the administration, Senate Energy Committee ChairmanFrank Murkowski (R-AK) last week blamed its lack of a “coherentenergy policy” for the heating-oil price spikes.

In response to the rising prices, President Clinton announcedthat approximately $130 million in federal aid would be availablefor qualified homeowners in the Northeast to meet their winterheating bills, and he proposed that Congress provide $600 millionin aid as well, according to Hebert. Clinton also recommended a”split” from heating oil to natural gas dependence in theNortheast, as well as an improvement in energy transportation. ButMurkowski saw these as only short-term fixes to a much largerenergy problem.

“…[T]he cost of this aid, $730 million, almost equals the costof building the ANR SupplyLink project and the IndependencePipeline project at $803 million,” Hebert said during theCommission’s regular meeting last Wednesday. FERC has conditionallyapproved the two Northeast pipeline projects, but is withholdingtheir certificates until greater demand can be demonstrated.

While the Commission struggles with the issue of the need formore pipeline deliverability to the Northeast, Hebert said theregion’s heating-oil customers are paying the price. “…[S]houldthis Commission continue to…[hold] captive the consumers of theNortheast and force them to pay excessive prices to heat theirhomes and businesses? Or, should this Commission foster and enhancethe alternatives available to the consumers? We all know theanswer.”

Even gas customers paid the price when New York citygate pricessoared to high levels in mid to late January, while prices at theHenry Hub languished in the cellar. Many pinned the reason for thehigher gas prices on the severe cold weather in the Northeast then,which put a strain on existing pipeline deliverability.

Although this was a relatively mild winter overall, “a review ofoperational and pricing data from this winter shows that theexisting pipeline infrastructure was clearly challenged to meet gasdemand in the Northeast,” said Gary D. Lauderdale, Transco’s seniorvice president and general manager, at a Senate hearing into theheating-oil price spikes last Thursday.

Transco was able to meet its firm contractual commitments thiswinter in the Northeast, but it wasn’t able to supply gas tointerruptible customers, many of whom were forced to switch to fueloil, he told the Senate Energy and Natural Resources Committee.Several other pipelines serving the Northeast had to restrict theirdeliveries of gas for “limited periods of time.” Lauderdale saidTransco proposed a 700,000 Dth/d expansion of its existing line inPennsylvania and New Jersey to serve the growing demand in theregion, but the project (MarketLink) has been caught in an”extremely slow regulatory approval process.”

The “scarcity of pipeline capacity” into the region wasreflected in the higher increases in delivered gas prices in theNortheast during January. While the average delivered gas price onTransco’s system for Zone 6 (non-New York) rose 106% in January to$4.89 from $2.37 a year ago, the increase on Transco’s system intoNew York in January rose 129% to $5.87 from $2.56 a year ago, henoted. The price increases in February were even “more dramatic.”

“In January and February 2000, customers in the Northeastexperienced record high daily gas prices of $15.34 for deliveriesinto New York and $12.31 for other Zone 6 deliveries,” Lauderdaletestified. In comparison, the average delivered gas prices at theHenry Hub rose only 29% to $2.39 in January from $1.84 a year ago,and in February prices increased 55% to $2.75 from $1.77 inFebruary 1999.

“If the existing pipeline infrastructure is currently taxed,what will happen when the projected growth in natural gas demandoccurs?” he asked. The Energy Information Administration (EIA)projects that gas demand in New England, Mid-Atlantic states andSouth Atlantic states will rise by a total of 3.3 Bcf/d by 2005.Transco’s MarketLink expansion project has been pending at FERCsince May 1998.

Commissioner Linda Breathitt defended FERC’s action, saying”it’s hard for me to make the leap that a price spike [in heatingoil] translates to an immediate demand for natural gas” in theNortheast. “There’s a conversion process that would have to takeplace over a period of time,” she noted. “I do not believe that thedemand for gas in the Northeast requires the Commission to issuecarte blanche authority to construct pipelines facilities.”

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.