The challenge of transporting natural gas to energy-hungry consumers in the Northeast is continuing to create opportunities and spur demand for small-scale applications and virtual pipeline services throughout the region.
Despite the sharp uptick in gas production from the prolific Appalachian Basin over the last decade, pipeline constraints remain an issue in the Northeast, particularly in downstate New York and New England.
Gaps in the region’s energy delivery have provided inroads for small-scale liquefied natural gas (LNG) and compressed natural gas (CNG) providers. Companies in the space are reporting stronger growth as consumers look for alternative sources of energy amid a global push to cut greenhouse gas emissions.
“Pipelines are getting older by the day,” said Rev LNG LLC’s David Kailbourne, CEO of the Pennsylvania-based firm. Rev liquefies, transports and regasifies supply for small-scale use across the country. “In the Northeast, there is undoubtedly substantial political and environmental pushback to the construction of any new pipeline. So, the only thing you can do is repair and upgrade the existing pipelines.”
Small-scale LNG and CNG service providers can tap into pipelines during maintenance events to keep supplies flowing. They can also provide supply in remote and stranded areas with limited or no access to gas pipelines.
The bulk of the Northeast’s heating and power generation needs is still met by natural gas. Moreover, New England and New York rely heavily on small-scale gas imports to meet peak day demand.
Kailbourne expects to see a growing need for LNG bunkering, or marine refueling services, along the eastern seaboard as the shipping sector aims to clean up its environmental footprint.
“We see the demand continuing to increase across the Northeast, as well as across the United States for all this type of work,” Kailbourne told NGI.
Roughly 2 Bcf/d of excess pipeline capacity exists in the Appalachian Basin, where the Marcellus and Utica shales are a primary resource for end-users throughout the Northeast. Still, extra capacity can be sparse and it’s likely to shrink in the coming years, when additional bottlenecks are again expected to emerge.
“Without any maintenance events, there is still some excess capacity out of the Northeast,” said East Daley Capital Inc. analyst Ryan Smith. “The balance is tight, though, because we’ve had significant production growth in the past couple years…It doesn’t take much for prices to be discounted.”
Constraints have been evident this summer. Appalachian producers have been unable to take advantage of a rally in U.S. benchmark prices. Curtailments on Texas Eastern Transmission Co., Columbia Gas Transmission, the Rover pipeline and EQM systems have widened basis differentials at both Algonquin Citygate and Dominion South, according to NGI data. Since April, there have been steeper discounts to Henry Hub versus the previous five years, particularly between May and July when pipeline issues arose.
East Daley is forecasting Appalachian gas production to grow to about 36.5 Bcf in 2025 from about 33.5 Bcf/d in 2021. Gas consumption across the country is also expected to increase in the coming years, according to the Energy Information Administration.
East Daley analysts also expect to see further pipeline constraints in the Northeast beginning to emerge by 2024. Bottlenecks could happen sooner if the Mountain Valley Pipeline (MVP) doesn’t come online by next year as scheduled. PennEast, the only other major pipeline project slated for completion except for smaller expansions, isn’t expected to enter full service until 2024. Both MVP and PennEast have faced repeated delays because of regulatory and legal setbacks.
“We don’t have a line of sight into any new expansion projects beyond 2023,” Smith told NGI. “The issue in the Northeast is that all the relatively easy expansion projects that could happen with compression, or a short amount of looping — anything that’s under the radar in terms of regulatory approval — has basically been done.”
Short of “astronomical” cost overruns, it also appears increasingly unlikely that another large greenfield pipeline will be built out of the Northeast, he added.
Even still, regional consumption continues to grow. In New England alone, gas utility demand has increased by 30% over the last decade amid lower costs for the fuel and conversions from fuel oil, according to the Northeast Gas Association (NGA).
“In the larger market as well, the role of natural gas for power generation needs to be acknowledged,” said the NGA’s Stephen Leahy, vice president of policy and analysis. “There’s a general market challenge in that many of the gas generators rely on non-firm pipeline transportation, which is not an issue in the summertime, but is one in the winter — reflected in pipeline constraints, volatile spot prices and overall system stress, during very cold weather conditions.”
Northeast basis pricing has blown out during the cold snaps of recent winters as buyers scrambled for natural gas and sent prices soaring. Price spikes throughout the year are also becoming more common as extreme weather events and international demand for U.S. LNG exports test supplies.
Filling The Void
Small-scale LNG and CNG services have continued to gain an edge amid such challenges. Sapphire Gas Solutions CEO Sam Thigpen told NGI that the biggest driver of Northeast growth for his company is peak shaving services during the winter when cold weather stresses the pipeline grid.
The advantage of small-scale applications has also strengthened over the last year. Prices for propane — long the top choice of remote gas-starved consumers in the Northeast — have jumped sharply with the rise in oil prices.
Spot market propane at the biggest natural gas liquids hub in the country, Mont Belvieu, TX, was recently trading above $1.00/gallon. Last year at the same time, it was slightly under 50 cents. Propane prices are tied to crude oil, which has continued to gain as the world rebounds from the Covid-19 pandemic.
“It bodes well for us if you’re an LNG or CNG guy,” Kailbourne said. “Oil has steadily been above $55/bbl over the last six to nine months.”
Given the dependence on small-scale LNG across the Northeast, Kailbourne added there’s a glut of liquefaction capacity with key import terminals and plants in Massachusetts, New Jersey, Pennsylvania and Quebec. However, he stressed that there is a shortage of service companies to move smaller volumes of the super-chilled fuel and vaporize it for consumers. The shortage, he said, leaves more room for growth in the space throughout the region.
Environmental, social and governance (ESG) initiatives as the climate imperative draws more scrutiny are also a bigger factor for small-scale demand, Kailbourne said.
“The biggest growth that I’m seeing, the biggest driver, is the demand for ESG goals for customers and utilities,” he said. “We are seeing a tremendous amount of demand for our LNG not to be made with fossil fuel, but to be made with renewable sources like renewable natural gas (RNG).”
Thigpen agreed. Sapphire began offering RNG transport and system injection services in California.
“What that did for us is it opened our eyes to the fact that there are these RNG developers and they need an offtake for this gas,” he said. “We would absolutely be happy to purchase RNG and inject it into our peak shaving solutions up there in the Northeast and help with the carbon footprint while at the same time helping with pipeline constraints.”
Sapphire recently hired a business development manager to work solely in the energy transition space. Thigpen said the company also is considering providing hydrogen services that would allow customers to blend a small percentage of the fuel into pipeline systems. The company is exploring whether it could serve carbon capture projects that don’t have access to storage sites, as well.
In the Northeast, where social and political opposition to fossil fuels has markedly intensified in recent years, the energy transition could actually give small-scale LNG and CNG providers a leg-up against the competition if they pursue environmentally differentiated products like RNG. It’s the same molecule and would not require different equipment.
“The gas utilities are looking at a broad portfolio of options to meet demand and to meet environmental and low-carbon goals,” Leahy told NGI, referring to distribution companies in the Northeast. “The utilities in the region are national leaders in terms of investments in natural gas efficiency programs and that will continue.
“In addition to demand-side programs like efficiency or demand response, utilities are also focusing on reducing their carbon footprint, through renewable natural gas inputs and looking at the potential of hydrogen.”
Representatives from both Rev and Sapphire, along with others from the small-scale gas sector, are scheduled to address the LDC Gas Forums Northeast in Boston, MA, July 20. The panel will discuss the need for alternatives to distribute more natural gas throughout the region.
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