ISO New England Responding to Polar Vortex by Burning More Oil/Diesel Than Natural Gas: Lack of Pipeline Capacity is the Major Issue, (Although Capacity Manipulation Could Also Be a Factor)

ISO New England Responding to Polar Vortex by Burning More Oil/Diesel Than Natural Gas: Lack of Gas Pipeline Capacity is the Major Issue, (Although Capacity Manipulation Could Also Be a Factor)

It is clear that New England needs natural gas pipelines and they are near one of the world’s largest sources of natural gas – the combined Marcellus, Utica, and Geneseo Shales of the Dry Gas region of Northeastern Pennsylvania (and currently off-limits Southern Tier of New York). The following graph/chart is from real-time data on the afternoon of Dec. 28, 2017. Renewables is mostly wood and waste biomass. Wind and solar together make up less than a third of the renewables (shown in orange on the graph)

31%		Oil
25%		Nuclear
23%		Natural Gas
11%		Renewables
6%		Coal
5%		Hydro

 

‘Gas for next-day delivery on Enbridge’s Algonquin city gate in New England, including Boston, settled at $35.35 per million British thermal units on the Intercontinental Exchange on Tuesday. Algonquin gas last rose that high in February 2014 during the polar vortex.”

This is happening in an area very near to some of the largest natural gas supplies in the world. Why? Mainly due to inadequate pipeline infrastructure.

Algonquin has been having such price spikes for years now and one factor could be capacity manipulation with day-ahead gas contacted and the canceled for a couple local utilities. Although this is legal it is also inefficient and suggests a need for updated regulations to optimize the available infrastructure. This can exacerbate demand-driven price spikes and be beneficial for traders. However, the bigger problem is that capacity is inadequate. With more people and businesses converting to cheaper (most of the time anyway) and less polluting natural gas from fuel oil and with more New England electricity coming from natural gas power plants there is clearly a need for more pipelines. Fuel switching from natural gas to petroleum fuel oil typically occurs in New England when gas prices hit about $14 per MMBTU and in New York at around $10.50-11 per MMBTU.

Why is natural gas infrastructure inadequate? There are several reasons including closing of nuclear and coal plants and more customer demand for heat. This has led to over 50% of the electricity mix in New England being derived from pipeline-derived natural gas – at least in times of adequate supply. New pipelines in New York state have been rejected by the state’s environmental reviews which cite potential damage to streams and wetlands. New pipelines have also faced public opposition due to strong organized campaigns by environmentalists which some say are ill-conceived and can lead ironically to more atmospheric pollution as well as increased environmental and climate impacts. Another issue brought up in the Forbes article was the 2016 state ruling in Massachusetts that:

“… forbade utility companies from entering into long term natural gas deals with the intent of passing on charges to customers. After the legal case was decided in Massachusetts, Kinder Morgan withdrew plans for a new pipeline.”

Local governments have also been hostile to new pipelines. Many New Englanders also heat with wood which has both a big particulate footprint and a big immediate carbon footprint.

One outsized powerful force blocking pipelines into New England, causing energy prices to spike, and manufacturing to slow is New York governor Andrew Cuomo who has been very outspoken against natural gas even as New York state continues to become more reliant on it through both residential heat and a greater percentage of gas-fired electricity. Pipelines into New England in nearly all cases must cross through New York. The state has blocked pipelines on several occasions by denying state water permits, citing the potential for damage to wetlands and streams, presumably through the typical sediment and erosion issues caused by any dirt-disturbing construction activities. The states ban on hydraulic fracturing has been charged with denying NY residents their property rights as well. According to the U.S. Chamber of Commerce Cuomo and the state of NY are directly responsible for New Yorkers and New Englanders for paying 44% higher than the national avg. for electricity and 29% higher for natural gas with regional manufacturers paying 62% more than the national avg. for electricity. The report also claims that by 2020 the region would lose 78,000 jobs, $4.4 billion in lost labor income and $7.6 billion in lost GDP. One might also say that Cuomo, more than any other single individual, is responsible for the unnecessary excess pollution and greenhouse gases due to burning fuel oil instead of natural gas in New York and New England.

Another twist to this story happened yesterday as I write (Jan. 4. 2018) when the Pilgrim nuclear plant went offline due to a problem with an outgoing power line. ISO-NE notes that power reliability was not threatened as natural gas, oil, and hydro replaced the offline nuclear power. Oil as a back-up power source (mainly due to supply problems with lack of nat gas pipelines) backs nearly half of ISO-NE power and now even oil on-site is a potential issue, but temps are expected to come up before that:

"Almost 50% of the generation fleet is able to rely on oil as a backup," New York ISO Executive Vice President Rich Dewey said on the call yesterday. "Fuel diversity allows us to be very well positioned for an event like this."

The bottom line is that one of the largest gas fields in the world which has been struggling for years now with an oversupply glut and low prices is few hundred miles away from a massive demand center that regularly and repeatedly struggles with an undersupply of gas. This is a ‘no-brainer’ type of opportunity that would significantly benefit both parties and the environment. Instead, anti-pipeline advocates are contributing to the unnecessary burning of oil.

References:

In a Bad Trade Off New England Forsakes Natural Gas for Petroleum – by Ellen R. Wald, in Forbes, Dec. 27, 2017

Cold Snap Makes New England the World’s Priciest Gas Market - by Naureen S. Malik, in Bloomberg, Dec. 26, 2017

ISO New England – Real-Time Maps and Charts – at www.iso-ne.com

Amid Deep Freeze, New Englanders Can 'Thank' NY Gov. Cuomo for Their High Energy Bills - by David Blackmon, in Forbes, Jan. 3, 2018

Pilgrim Nuke Goes Offline as Northeast is Buffeted by Winter Storm - by Robert Walton, in Utility Dive, Jan. 5, 2018