Citing a new report that it commissioned, the New England Council, which represents businesses, academic institutions and health organizations throughout New England, issued a warning on Wednesday that the region could face severe economic consequences without rapid construction of new liquefied natural gas (LNG) import terminals.

The report titled “The Economic Imperative for Additional LNG Supplies in New England” was done by Polestar Communications and Strategic Analysis. It concludes that enhanced LNG infrastructure, mainly new import terminals, in New England will help moderate natural gas price volatility and lower gas prices. Without new LNG infrastructure, the region will face a supply crisis.

High gas prices and volatility have “forced businesses and consumers in New England to pay at least $500 million more for electricity every year since 2001,” said James T. Brett, CEO of the council. “Given the lead time it takes to permit and construct new natural gas infrastructure facilities, actions deferred or undertaken now will significantly influence the region’s economic growth for years to come.”

Brett also referred to a recent study by the Interstate Natural Gas Association of America that estimated that a two-year delay in natural gas system infrastructure expansion could potentially cost the region $3 billion between 2005 and 2010 in higher natural gas prices.

“The high cost of natural gas in the region places businesses, especially manufacturers, in New England at a disadvantage with nationwide competitors and causes the region to be a less attractive option for new facilities and new jobs,” Brett said.

Mark Kalpin of Wilmer Cutler Pickering Hale Dorr LLP and chairman of the council’s energy and environment committee, said that projections by the federal government and private consultants indicate that by 2010 New England gas demand will equal or exceed available supply.

New England experienced a dramatic increase in gas demand over the last decade, rising 70% from 1993 to 2003. Not only is natural gas used to heat 2.1 million residences and 240,000 industrial and commercial businesses in New England, but 42% of the region’s natural gas also is used to generate its electricity.

In 2003, the U.S. Department of Energy noted that New England consumers paid 30% more for natural gas than the national average because of its geographic location and lack of indigenous supplies. The Polestar report said that at a point in 2004, manufacturers in New England were paying 83% more than the national average for natural gas.

The report also notes that on peak demand days, the region’s natural gas pipeline system operates at 90% capacity, leaving little room for future growth and that during a cold snap in January 2004, the gas supply system was stretched to its capacity at key points.

In exploring the supply options, the report concludes that new LNG infrastructure located in New England is the most realistic choice for bringing additional substantial supplies to the region. Currently, LNG provides nearly 20% of the region’s annual consumption of natural gas, but on the coldest days of winter that number can double to up to 40%.

LNG is currently delivered by tanker to the Distrigas terminal in Everett, MA. From there, it is transported by truck to storage tanks owned by gas distribution companies throughout New England. Unlike other areas of the country, the region’s geology does not permit natural gas storage in underground caverns or reservoirs. There are currently 46 LNG storage tanks located in 31 communities in five of the six New England states.

Despite the large number of LNG storage tanks and the Distrigas import terminal, there have been significant concerns about each of the proposed LNG import terminals. Several proposed terminals in Maine have been canceled because of local opposition and several other proposed terminals in Rhode Island, Massachusetts and offshore Connecticut are fighting a steep uphill battles against stiff local and political opposition (see Daily GPI, May 16; May 12; April 20).

The Polestar report recommends that LNG infrastructure construction begin immediately. “Without new LNG facilities, the region will remain energy and economically challenged, with higher costs, less reliable supply and decreased energy security. LNG systems located within the region remain the best economic and supply option,” Brett said.

The Polestar report expressed a greater urgency regarding LNG development than another report done earlier this year by the Power Planning Committee of the New England Governors’ Conference (see Daily GPI, April 8). The Power Planning Committee report titled “Meeting New England’s Future Natural Gas Demands: Nine Scenarios and Their Impacts,” which was represented to the region’s governors in March, examined the costs and other considerations of nine different ways the region could add to reserve margins and increase supply reliability.

It determined that there should be a positive gas supply reserve margin until about 2012 unless demand grows faster than currently projected or the region’s satellite LNG vaporization capacity suddenly becomes unavailable. What it found was that the greatest enhancement to reserve margins would come from new LNG terminals. However, the LNG terminals also would cost the most out of all the options because of the cost of natural gas and of terminal construction. It also noted that onshore in-region LNG terminals come with “many safety concerns” depending on their proximity to population centers.

While the LNG scenarios made the greatest enhancements to supply, the report found that any of the other options, including more renewable power generation, greater reliance on fuel switching, coal gasification, more nuclear power, reliance on Canadian LNG terminals and expansion of the Maritimes & Northeast Pipeline, also would lead to positive supply reserve margins even in a high demand case.

For a copy of the Polestar report contact The New England Council at (617) 723-4009 or The report also will be available at the council’s website:

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