Price spikes during summer and winter demand peaks over the last several years in the New York City metropolitan area have not gone unnoticed, and a succession of pipeline projects with heavy duty sponsors are marching forward to fill in the gap. The first two totaling 175 MMcf/d of capacity are slated to go into service in November.

The demand for additional capacity into New York City has been evident in the widening basis spread during peak demand periods between the Transco Zone 6 New York and non-NY pricing points in recent years. Duke Energy’s Texas Eastern Transmission (Tetco) and Williams’ Transcontinental Gas Pipe Line (Transco) will put expansions in place this winter that could lead to smaller spreads. In addition, there are three other projects to bring gas in through Long Island from the north next year. Of those, the first in line is expected to be the Eastchester expansion of Iroquois Gas Transmission, which is under construction and should be up and running in March 2003.

“It’s been obvious for several years, there’s a need for more capacity into the New York City area; the problem has been getting somebody to pay for it,” one trader said. While the New York Facilities Group, including KeySpan Energy and Consolidated Edison, manages deliveries through the metropolitan area — moving the long-haul gas around through their systems — it can make a difference where it is delivered. Tetco goes into Staten Island and to a major interconnection with KeySpan. Tennessee Gas Pipeline delivers gas to Con Edison northwest of the city in New Jersey and in Rockland County, NY, and Iroquois currently delivers gas to KeySpan on Long Island. Only Transco goes into the center of Manhattan.

In the past, marketers have blamed “a bottleneck at the Linden Compressor station” on Transco for peak demand price spikes. In fact, it’s not a compressor station, it’s a regulator, but Linden, NJ, is a break point on Transco in Zone 6 for capacity that can get into the metropolitan area (Z6 NY) and delivery points farther upstream (Z6 non-NY).

“They can only take so much gas through the Tetco M-3, Iroquois Zone 2 and Tennessee Zone 5 connections into New York City,” one utility buyer said. During slack times, all the New York points run in tandem, but when those lines are maxed out, Transco Z6 NY is the pressure point or the marginal unit. When the other lines are full, “it raises demand for the more expensive Transco Zone 6 New York, instead. There’s only a limited amount of Z6 NY capacity, whether it’s coming from Leidy storage or from the Gulf Coast on the mainline.”

And it’s the Transco Z6 NY prices that have spiked, out of sync with the rest of the market, in the winter for several years. The disconnect also has shown up this summer. The winters of 1999-2000 and 2000-2001 saw the average daily basis spread between Z6 NY and Z6 non-NY widen to 45 cents and 51 cents respectively. Last winter, which was very warm, the spread was only 9 cents. Another factor last winter also may have been the start-up of Phase I of Transco’s Marketlink project in December which added 166 MMcf/d of capacity into the area.

But even that wasn’t enough to handle this super-heated summer. While the basis spread between the New York City pool and non-NY stayed in the 6-7 cent range for the summers of 2000 and 2001, it widened this summer to an average of 20 cents, according to prices reported by NGI’s Daily Gas Price Index.

A 100 MMcf/d expansion of Texas Eastern, called the TIME project (for Texas Eastern Incremental Marketing Expansion), is racing toward a November in-service date. This expansion through Pennsylvania and New Jersey will deliver gas to New Jersey Natural Gas Co. “This brings 100 MMcf/d into the New Jersey-New York area, and depending on how the New York Facilities Group is being operated, it potentially can move more gas into New York,” said Greg Rizzo, senior vice president of marketing and capacity of Duke Energy Gas Transmission (DEGT). And he’s confident the additional capacity will be in service in early November. Texas Eastern delivers about 2.6 Bcf/d into Lambertville on the western New Jersey border, in a direct line with New York City.

Rizzo declined to speculate on the prospects for prices this winter. “Like everyone else, I’m not brave enough to do that anymore.” But he offered “one observation: we have had about six strong weeks of pretty big heat; and while we’re still ahead on storage, that storage is not as far ahead as it was going into the summer.”

While the capacity additions for this winter should help meet the increased demand from the New York metropolitan area, “I think Islander East is going to be the key for that. Getting it in for November of ’03 will be very important,” Rizzo said referring to the new pipeline project sponsored by DEGT and KeySpan. “Once we get Islander East in, and with expandability of Islander East, I think that’s going to go a long way toward meeting market demand in the New York City-Long Island market for awhile.”

The facilities proposed for Tetco’s TIME project will be comprised of four new segments totaling about 16 miles of 36-inch looping and a new 10,000 horsepower (hp) compressor unit added to the Lambertville, NJ, compressor station and modifications to existing units at the Armagh and Entriken, PA, compressor stations to increase output by 8,600 hp each.

Phase II of Transco’s Marketlink and its Leidy East expansion projects, coming on in November, will provide 130,000 Dth/d each of new capacity, but only 75,000 Dth/d from the two projects will go into the New York City area. The rest will be delivered in Z6 non-NY, upstream of Linden, NJ in Pennsylvania and Maryland. The Marketlink project entails the construction of about 30.3 miles of 12- to 42-inch diameter looping in Pennsylvania and New Jersey, a new 15,000 horsepower compressor unit in Columbia County, PA, a 15,000 hp compressor unit in Mercer County, NJ, and associated facilities. Two shippers — Virginia Power Energy Marketing (100,000 Dth/d) and PPL EnergyPlus LLC (30,000 Dth/d) — have signed on for the capacity.

Also coming on line is the related Leidy East pipeline expansion, which will provide up to an additional 130,000 Dth/d of transportation from Leidy, PA, to markets in the Northeast region. This project consists of about 26 miles of 42-inch diameter pipe looping and about five miles of 30-inch diameter pipe mostly in western Pennsylvania, and an additional 3,400 hp of compression in Pennsylvania and New Jersey. Customers to be served by the Leidy East expansion include Aquila Energy Marketing (25,000 Dth/d), PECO Energy Co. (30,000 Dth/d), Reliant Energy Services (25,000 Dth/d) and Williams Energy Marketing (50,000 Dth/d).

While the Tetco and Transco projects will bolster supplies going into the area from the southwest, Iroquois’ Eastchester Expansion, a 36-mile pipeline from Northport, NY, to Hunts Point in the Bronx, adjacent to Manhattan, boasts of being the first new pipeline to be built actually into New York City in 40 years. It received its certificate from the Federal Energy Regulatory Commission last December and is due to go into service in March 2003.

Including an upstream expansion project, Eastchester will bring an additional 230 MMcf/d into Long Island and forward 300 MMcf/d into the heart of New York City. The expansion includes installing a second unit at the company’s Croghan, NY, compressor station; new compressor stations at Boonville and Dover, NY; cooling units at Athens and Wright, NY; and an equipment upgrade at Wright. Iroquois also has an 85 MMcf/d compression expansion planned in Connecticut, which is awaiting state siting approval.

Beneficiaries of the new supply will be: Virginia Power Energy Marketing (20,000 Dth/d), Mirant New York Management (60,000), KeySpan Ravenswood (60,000), Consolidated Edison Energy (30,000) and Orion Power Holdings (60,000). ConEd, KeySpan and Orion will use their capacity to serve power generation load in New York. The five have signed 10-year precedent agreements for the capacity.

Two further projects to send new supplies into Long Island currently are awaiting certification, but it’s likely only one will be built (see separate story). Iroquois is planning an East Long Island Extension (ELI) to carry about 175 MMcf/d from Connecticut to Long Island through a 30-mile, 20-inch pipe, while Islander East would lay pipe across the Sound to carry 260 MMcf/d — expandable to 400 MMcf/d.

ELI received preliminary clearance in a draft environmental impact statement (DEIS) recently. Islander East is one step ahead, having received its final environmental impact statement (FEIS), but that evaluation includes a statement that the FERC staff believes environmentally ELI is the preferable route. The FEIS noted, however, there are other issues at stake that the full Commission will be considering.

Rizzo has pointed out a key benefit of the Islander East project is the fact that it will take a different route across the Sound, thereby adding a measure of reliability to deliveries onto the island. The line will pick up from an extension (HubLine) of Duke’s Algonquin Gas Transmission system in Connecticut, and will function as the delivery end of the Maritimes & Northeast Pipeline from the supply basins off Nova Scotia. Duke is a 75% owner of Maritimes, which is expected to double in size by 2005.

Iroquois’ line carries mostly western Canadian gas, although a connection is planned with Algonquin which would tap the eastern Canadian supply.

A FERC decision on the projects is expected in September and the sponsors of both projects have said they expect only one line will be built.

There are other projects potentially in the wings, including an expansion of El Paso’s Tennessee Pipeline Line 300 into the area and the Blue Atlantic pipeline proposal — in the feasibility study stage — by El Paso. It envisions a 750-mile, 36-inch, $1.6 billion offshore pipeline from Nova Scotia to the New York-New Jersey area.

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