Last winter, New England experienced the highest average natural gas and electricity prices in the country. On any given day, New England natural gas markets have the highest and most volatile spot prices in North America. When temperatures plummet during the peak of winter, weather demand increases at such a rapid rate that major gas pipelines across the region become constrained.
That was the case last winter when local temperatures reached 15 to 20 degrees below average, resulting in flow volumes at or near maximum pipeline capacity. Exacerbating the situation is the fact that more than half (52%) of the electricity produced in New England comes from gas-fired generators, there has been a drastic drop-off of LNG imports into the region and offshore Canadian production has been a disappointment.
In New England, as with most markets, power prices move in step with regional gas prices. When pipelines get constrained, the price of gas in the delivery area rises, and in turn, so does the cost of electricity. New England is a primary target for the vast amount of Marcellus Shale gas being produced in nearby states. The problem is getting it there. The solution to New Englands high energy prices is improved gas pipeline capacity. But, herein lies another problem: pipeline projects can take years to complete from the planning stage to actual operation, and for New England, there is nothing on the horizon until at least 2016.
The largest project in the planning stages right now is Spectra Energys Algonquin Incremental Market Project. As currently proposed, the project outlines the replacement of 25.6 miles of various segments of the existing mainline relay and loop, and includes 1.2 miles of new pipeline to be installed beneath the Hudson River using a horizontal directional drill. Once completed, the pipeline will have the capacity to bring up to 0.433 Bcf/day of natural gas, primarily Marcellus Shale gas, to New York, Connecticut, Rhode Island and Massachusetts. The project is expected to be completed in 2016.
Kinder Morgan Energy Partners is proposing to expand its Tennessee Gas Pipeline (TGP) with at least two major projects. The first, the Northeast Connecticut Expansion Project, will bring an additional 0.072 Bcf/d to New England by November 1, 2016. The project calls for approximately 13 miles of new pipeline loops along TGPs 200 Line system in New York, Massachusetts and Connecticut, and would increase capacity from Tennessee's existing interconnect with Iroquois Gas Transmission in Wright, New York, to Zone 6 delivery points on Tennessee's 200 and 300 lines.
Kinder Morgans second project is the construction of their Bullet Line, running 150 miles from Wright, NY to Dracut, MA. This will be a 30 high pressure line with a capacity of 1.2 Bcf/d, and will directly benefit the Boston area. This would be the third pipeline serving the highly congested region, and Kinder Morgan hopes to have the project in service sometime in 2017 or 2018.
For the next two winters, New Englanders can expect the same price spikes and high volatility in energy prices as they saw last winter. Nothing has changed since then, and not much can be done in the interim. LNG imports are available, but only at a price high enough to compete with international markets, and Canadian production from Deep Panuke will, at best, replace the declining production from Sable Island. But after 2016, if all projects go as planned, gas pipeline congestion should be significantly reduced, and with Marcellus gas flowing into the New England market, the energy landscape for this region will be vastly different. But there are still two primary risks to the construction of the new pipes. 1) There are significant upfront capital costs to build a new pipeline. 2) And NIMBY (not in my backyard) is a frequent obstacle for energy infrastructure, especially in a densely populated region like New England. So stay tuned because the outlook can change quickly.