New England Imports LNG in lieu of Building Pipelines

New Englanders have a problem. They are using more and more natural gas for electricity generation and for home heating. In fact, they are the only region of the country where natural gas is increasing as a heating fuel. They can get inexpensive U.S. natural gas by building pipelines or they can buy imported expensive liquefied natural gas (LNG) from the Caribbean to fuel their generators and homes. Unfortunately, anti-pipeline activists are winning the fight. Kinder Morgan Inc. had to scrap its proposed $3.3 billion Northeast Energy Direct project in April due to a lack of customers. The Constitution Pipeline that would bring Marcellus gas from Pennsylvania is being held up because New York denied it a water permit, citing concern about contamination of the city’s supply. As a result, three or four times a month, giant ships are escorted through Boston Harbor, delivering LNG from Trinidad to a terminal on the Mystic River. That terminal supplied 11 percent of New England’s gas in January—the most since 2012.

Northeast’s Reliance on Natural Gas

Natural gas-fired plants are currently providing over half of the Northeast’s electricity, up from 15 percent in 2000. The lack of diversity in generating supply has caused prices to skyrocket when gas supplies are low. When the polar vortex hit the Northeast in 2014, prices skyrocketed in the Northeast. That January, spot prices for gas in New England reached a record of nearly $80 per million British thermal unit (Btu)–15 times the price of Marcellus gas at that time. Even during a normal winter, New Englanders pay more for natural gas than elsewhere. For example, natural gas for delivery next January via Spectra Energy Corp’s New England network now costs around $8.46 per million Btu, compared with $3.16 for Pennsylvanian shale gas. The higher prices are due to a lack of infrastructure to get the needed gas the 300 miles from the Marcellus to New England.

Protests are still hampering an expansion of an existing natural gas pipeline, which is still months away from completion by Spectra. Another Spectra project, Access Northeast, if approved, would bring 925 million cubic feet of gas a day from Pennsylvania, which is enough to generate the electricity from five nuclear reactors, saving $2.5 billion a year on electricity and gas bills for New Englanders.

Environmentalists are against building pipelines because they want the fossil fuels to remain in the ground. However, over 80 percent of our energy comes from fossil fuels—oil, coal, and natural gas. So, leaving them in ground is not an option. Environmental groups want more efficient energy use (e.g. light bulbs and appliances that use less power) to handle surges in demand. But, that is unrealistic when shortages occur during cold whether when New Englanders need to heat their homes. Because home heating gets priority, electric utilities must pay the huge surcharges that they then pass onto consumers. Despite incentives offered to generators to stockpile LNG during the past two winters, another Polar Vortex or a long cold streak could see prices skyrocket again.

Source: Institute for Energy Research
Date: Jul 25, 2016