About two years ago, regional energy experts were touting the advent of plentiful and cheaper natural gas in New England, thanks to a concurrence of events — technological developments enabling shale-gas extraction, expanded pipeline capacity for supplies from western Canada, and new liquid natural gas (LNG) terminals in the northeastern U.S. and Canada.
In contrast to the earlier portion of the last decade, when New Englanders faced high prices and fluctuating supplies for their large fleet of natural-gas power plants, “the change in the conventional wisdom about natural gas was radical,” said one expert. At the time, many agreed that the new circumstances, in which supply was plentiful and prices were low, were likely to continue for the foreseeable future.
But the future has arrived, and some of the same experts now worry that New England will face a return to the unstable supplies and higher prices of five to ten years ago, absent the construction of new pipeline infrastructure to bring enough of the still plentiful gas supplies into the region. With 43 percent of power plants in New England fueled by gas, and over 5,000 megawatts of new gas-fired plants planned for the future, the region would feel an acute impact from a sudden run-up in prices.
The big question that faces us is who will pay for the needed infrastructure improvements, said Susan Tierney of the Analysis Group, one of the speakers at a meeting of the Restructuring Roundtable, a Boston energy forum, on June 15.
New England is at the end of the supply pipeline, and today other states – New York, Pennsylvania and Ohio — are the beneficiaries of investments in new infrastructure to bring Marcellus shale gas to their populations, said Richard Paglia, vice president of Spectra Energy, a pipeline company with interests in the region. Their advantage over New England reflects the number of firm long-term contracts for the fuel signed by power companies in those states, where the use of natural gas to generate electricity is growing as many older coal plants close down, said Paglia.
To respond to these new markets, companies are investing in more infrastructure.
But in New England, only ten percent of natural gas for power generation is contracted under firm arrangements, and the region’s Forward Capacity Market prices for electricity supplies aren’t high enough to entice pipeline companies to pick up the tab, as they have in neighboring markets, speakers said.
Without greater pipeline capacity and better prices, the supply will simply follow the money and New England will be under considerable pressure to satisfy the fuel needs of base-load power plants, said Richard Levitan, president of Levitan and Associates. In addition, LNG supplies to the region are decreasing, he said.
Previously, the region thought it had sufficient diversity in its supply sources, but being at the end of both the electric transmission system and the natural-gas pipeline system, there isn’t much flexibility left, even during the summer months when demand is generally lower, said Peter Brandien, vice president of the Independent System Operator of New England, which is responsible for the reliability of the region’s electricity grid.
One potential solution is offered by a proposed Spectra Energy project to expand the Algonquin pipeline, which brings natural gas to New England. But it is unclear how the project will be funded, and the pipeline expansion would need to be certified by the Federal Energy Regulatory Commission, a time-consuming process, said the speakers.
Several speakers made suggestions for addressing the funding challenge, including rule adjustments to better harmonize the natural gas and electricity markets; reform of the region’s Forward Capacity Market to reflect fluctuations in supply and demand at different times of the year through pricing; and regulations to compel electricity distribution companies to enter into more long-term firm contracts that would help secure funding for new infrastructure.
A final worry, raised by Tierney, is the potential impact of increasingly severe weather and rising sea levels on pipeline infrastructure. Even with sufficient conduits for natural gas, could climate change cause unanticipated interruptions in supply that might compromise the ability of the grid to satisfy demand, she asked?
Although Paglia noted that Spectra had never failed to deliver on firm contracts because multiple pipes and routes were always available, the future again may be hard to predict based on information from the recent past.
–By Eleanor Saunders