It may be time for all the critics of the proposed Independence,MarketLink and Millennium expansions to pipe down. Gasdeliverability to the Northeast clearly is not as rosy as manyindustry experts once thought as illustrated by the record high gasprices last week during a period of extreme cold.

While the Midwest and Gulf of Mexico were nickel and diming itlast week, gas prices at the New York City Gate were moving up indollar increments all the way to $19/MMBtu. Gas prices upstream atthe Henry Hub languished around $2.50. All of a sudden it seems asthough pipelines to the Northeast market have turned from lead togold.

“For the first time in three years we are finally seeing thevalue of pipeline capacity,” said Jeff DuBois, director of gassupply and off-system sales for Folsom, NJ-based South Jersey Gas.”It’s been depressed for three years and now all of a sudden everydrop of space is needed to serve the markets in the Northeast alongwith any other peak shaving supplies people can come up with.

“What’s funny is during this whole period the price of gas inthe Gulf of Mexico has really not changed that much,” he noted.”It’s basically within a nickel of the first of the month index.The difference in price is all in the value of that pipelinecapacity.”

Transco Zone 6 New York spot averaged $15.50 last Thursday whilespot prices at Transco Station 65 in Louisiana averaged only $2.54.All the New York and New England market points were rocketing tonew heights late last week. Iroquois averaged $10.25 Thursday andTennessee Zone 6 averaged $10.83/MMBtu. Meanwhile Chicago Citygateprices settled in the low $2.60s.

Tight deliverability and single digit temperatures were toblame. The cold triggered peak gas demand records throughout theNortheast region. For example Philadelphia-based Peco Energyreported a new record sendout of 718 MMcf/d — 16% greater thanthe previous record day six years ago, Jan. 20, which shows justhow long winter has been away in the Northeast. PECO reached therecord Monday when temperatures peaked at only 16 degrees, and thefrigid, extreme cold returned Friday when another peak demand daywas expected.

Last Monday also was the day Pittsburg, MA-based Berkshire Gasbroke a sendout record when temperatures dipped to minus 2 degreesFahrenheit. The company’s last daily sendout record of 45,813 Mcf,set in February 1995, was surpassed with a 24-hour gas sendoutending Tuesday morning of 53,053 Mcf. During an average winter day,gas sendout would normally peak at 35,000 Mcf.

Berkshire’s President Robert M. Allessio said it was “furthertestament to the load growth that we have realized in recent yearsand the performance that can be expected during normal winterweather. For several years now, we have been handicapped by warmerthan normal weather and, while the early part of this winter wasalso warmer than normal, we are encouraged by recent weather trendsand the outlook for the remainder of the heating season.” Berkshireserves 34,000 customers in western Massachusetts.

Baltimore Gas and Electric (BGE) reported that its 575,000 gascustomers set a new record for consumption Monday at 795,700 Dth— a 4% increase over the previous record. The old record was seton Jan. 18, 1997 with BGE delivering 765,000 Dth. Also, BGE brokethe hourly delivery record by 3.5% by delivering 38,100 Dth on Jan.17 from 7 to 8 a.m. The previous record was set on Jan. 19, 1994with 36,800 Dth.

KeySpan Energy on Long Island scrambled to meet consumption thatwas twice the normal rate for winter usage. In early January, LongIsland usually requires 300,000 to 400,000 Dth of gas each day.However, on Monday, Long Island set an all-time record high indemand of 641,613 Dth, surpassing the previous record of 585,000Dth set Jan. 19, 1995. The story was similar at KeySpan’soperations in New York City. During the cold snap on Friday,January 14, gas demand hit 1,050,364 Dth in Brooklyn, Staten Islandand Queens, an all-time high — at least until low temperatures onMonday increased demand even further to another record high of1,079,176 Dth. KeySpan said it had “more than adequate supplies tomeet customers needs throughout the region.” Enron currently ismanaging all of its supply, transportation and storage.

“Our reliability to meet the demand of our customers has notbeen compromised at all,” said KeySpan spokesman Robert Mahoney.”We do have a sizable LNG facility here in New York to facilitatedistribution in peak demand times.

“But we’ve had record sales growth. After merging with theformer Long Island Lighting Co. our gas market on Long Island hasdoubled,” he said. “There is definitely a need to build morepipelines in the Northeast.”

Meanwhile across the river in New Jersey, South Jersey Gas,which serves 271,000 customers in the state, also had a record peakdemand Monday of 387,792 Dth. “We’re looking at projected sendoutsFriday of about 413,000 Dth,” said DuBois. “We should be able tomake that, but we don’t have a lot of capability beyond that,” headmitted.

“The Northeast hasn’t really been tested for at least threewinters now and yet the customer base, especially in our territory,continues to grow.” A South Jersey spokesman said residential gasdemand has grown nearly 3% year over the past three years andcontinues at that pace.

“This LDC is served by only two pipelines directly, Transco andColumbia, and both of those pipes are fully subscribed so there’sno growth that’s going to come out of those. You end up with somereal heavy reliance on, for one thing, your LNG supply in your ownterritory, which is what we’ve been utilizing this past peak day onMonday and we are going to utilize it again on Friday, I’m sure.

“I think it’s a real issue going forward as the market areakeeps growing that there’s going to be the need for additionalpipeline capacity coming into the area,” said DuBois. However,South Jersey, like the other New Jersey and New York utilities aswell as LDCs in a couple other Northeastern states, is facing adilemma regarding new firm capacity because of systemwide customerchoice. “When it comes time to subscribe, who is going to be theparty that antes up.”

Statewide customer choice has just begun in New Jersey andmarketers are not required to use utilities’ upstream firmcapacity. Both KeySpan’s Mahoney and DuBois indicated the LDCs werenot willing to step forward and sign up for capacity on eitherTransco’s proposed MarketLink project or the 1 Bcf/d Independenceexpansion because of deregulation. The 700 MMcf/d MarketLinkproject, which would run from the Leidy Hub in Pennsylvania tomarkets in New Jersey and New York, is fully subscribed bymarketing companies and producers rather than the traditionalpipeline customers, the LDCs. It remains to be seen how successfulthe new retail marketers will be in managing peak demand. The LDCsclearly are still worried they’ll take the blame for any deliveryfailure.

“We’re constantly evaluating a 10-year window as to what ourgrowth is projected to be in our territory. We have been able tomeet it for this winter and expect to do so next winter through theacquisition of peaking supplies or other types of service like ourLNG. Out on the horizon though there has to be some incrementalcapacity in order to serve the customer needs,” said DuBois. “But Iguess you end up in a regulatory battle over whether you canrecover those costs if you go out and acquire those new supplies.”

Rocco Canonica

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