Saturday, September 20, 2014

New England Natural Gas Market 'Not Taking Full Advantage of Available Infrastructure'

Winter storm on New England coast (Credit: Click to Enlarge.
When temperatures plummeted across the Northeast last winter, spot natural gas prices along the Eastern Seaboard spiked to eye-popping levels causing many to call for additional pipeline capacity.  However, as is often the case with energy issues, the situation is more complex than it may first appear and constructing expensive long-term pipeline capacity may not be the best way to address the issue.

Breaking Energy recently spoke with Guy Braden, Senior Vice President of Commercial Operations for GDF Suez Gas North America, a subsidiary of GDF Suez North America ahead of his upcoming remarks at the North American Gas Forum taking place in Washington DC September 28-30.

The GDF Suez subsidiary owns and operates the Everett LNG terminal in Massachusetts that serves Boston and the surrounding region.  The terminal is equipped with 2 LNG storage tanks with a combined capacity of 3.4 billion cubic feet, or 42 million gallons.  Gas is delivered via interconnecting facilities of 2 interstate natural gas pipelines – Algonquin Gas Transmission and Tennessee Gas Pipeline Company – which in turn connect to local distribution networks.

Addressing a Peaking Problem with Baseload Capacity

The problem in New England is the market is well supplied throughout most of the year and average annual pipeline capacity usage is on the low side, explained Braden.  The supply situation disincentives large consumers like power generators to enter long-term contractual agreements – that would essentially require them to take long-term bets on natural gas prices – and rather source gas from the spot market, thus paying the going rate which has been historically low in recent years.  However, when extremely cold weather moves in and heating demand spikes, gas consumers converge on the spot market driving up demand and prices.
Talks are underway with power generators and the independent system operator about sharing the risk associated with securing supply that can be used during periods of extreme demand.  Companies pay a premium for the option to access supply during cold snaps so they are not beholden to spot market volatility.  The ISO is working on a program to help equitably share the cost of those option premiums.

But work must still be done to iron out the details.  “The idea is to compensate holders of LNG contracts that go unused at end of winter.  This leaves a lot of risk on the generators that has made them reluctant to enter into the program,” said Braden.  If these issues can be worked out, however, using LNG and existing infrastructure could be an easier, more cost-effective solution than constructing new pipeline capacity, he contends.

New England Natural Gas Market 'Not Taking Full Advantage of Available Infrastructure'

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