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New England Faces Decade of Narrowing Basis
New England’s natural gas infrastructure will be increasingly under pressure from demand growth from the power sector in coming years, with 11 of 14 sub-regions expected to exceed constraint capacity levels on more than 30 days/year under the current infrastructure, according to Benjamin D’Antonio, counsel and analyst for the New England States Committee on Electricity (NESCE).
A recent study of New England’s natural gas infrastructure and electric generation also concluded that gas pipelines being built to serve the region will provide significant economic benefits to electricity customers in the region, but an additional hypothetical pipeline would provide the most substantial economic benefits (see Daily GPI, Sept. 20), D’Antonio said at the Northeast Energy and Commerce Association’s fuels conference in Westborough, MA, Thursday.
The region faces a decade of narrowing physical gas basis prices, with natural gas from the Deep Panuke project offshore Nova Scotia expected to push down Algonquin Gas Transmission’s basis to Henry Hub, D’Antonio said. But, after averaging about $3/MMBtu for several years, growing demand from the power generation sector is expected by 2023 to begin pushing the basis higher.
Last month, Encana Corp. was given the green light to start up the long-awaited Deep Panuke project (see Daily GPI, Aug. 5). At about the same time, the company said Deep Panuke was “in the final steps to achieving first gas,” with final commissioning taking place offshore. “Gas will be introduced from the wells to the platform following final commissioning,” Encana said. The company estimated initially that Panuke would produce up to 400 MMcf/d. The proposal was revamped a few years later by Encana, and it now expects to deliver up to 300 MMcf/d for about 13 years.
The study, commissioned by the NESCE, which represents six New England states, recommended potential short-term (2014-2016) supply reliability solutions, including dual-fuel generation, demand-response measures, and the seasonal purchase of liquefied natural gas (LNG). In the long-term, the study, conducted by Black & Veatch, recommended the construction of a cross-regional pipeline that would add 1.2 Bcf/d of capacity.
Dual-fuel and demand response together would add 2.3 million MWh of dual-fuel, fuel-oil-fired generation coupled with demand response across New England, according to the study. LNG imports would add 300 MMcf/d of gas imports to existing receiving terminals in Saint John, New Brunswick, Canada (Canaport) and Everett, MA, during the peak winter months of January and February.
Under the base case, the LNG imports solution to New England’s gas supply shortage would provide an average benefit of $96-138 million per year depending on the contract terms with LNG suppliers, while the dual-fuel generation and demand response solution provide a net benefit of $101 million per year, the Black & Veatch study said.
A cross-regional gas pipeline would present higher net benefits to New England consumers than other long-term solutions, the study said. the pipeline, which would have a projected in-service date of 2017, would originate at the existing Tennessee Gas Pipeline and Iroquois Pipeline interconnect in Schoharie County, NY, and terminate at Tennessee’s interconnect with Maritimes & Northeast Pipeline in Middlesex County, MA. Black & Veatch estimated that the cross-regional pipeline would cost approximately $1.2 billion to construct.
In a high-demand scenario, the cross-regional pipeline can provide an average annual benefit of $340 million per year compared to the $123 million per year average annual net benefit that could be obtained from firm Canadian imports solution. “Through the construction of incremental pipeline capacity, this project has the potential [to] relieve New England’s gas-electric reliability issues through at least 2029.”
The Northeast has become heavily gas-reliant and preliminary estimates call for the Northeast to replace as much as 6.2-9.8 GW of coal-fired capacity with gas by 2015.
A recent FERC quarterly update of various regional efforts to coordinate natural gas and electric markets showed that the New England and Northeast generation markets will continue to be the most gas-dependent during the upcoming heating season. Earlier this month, the Commission passed an interim order that would make it easier for Northeast generators to substitute oil if natural gas was in short supply or was too high-priced.
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