Many New Englanders would like to convert their home heating systems to natural gas, but are not allowed because there is insufficient pipeline capacity to get the natural gas to their homes. Not only does the residential market want natural gas for home heating but so do the industrial and electric utility markets. Low cost natural gas is in demand and has been replacing coal and nuclear power in electricity markets in New England, which is now over 50 percent dependent on natural gas. But despite the demand, natural gas pipelines are having a tough time getting built in New England. Recently, the Supreme Judicial Court in Massachusetts ruled against energy companies having electricity consumers pay for the costs of new natural gas pipelines.[i]
Without additional pipelines, New England will be importing higher cost liquefied natural gas (LNG) to its terminal on the Mystic River in Boston Harbor. That terminal is the only LNG facility in the United States importing LNG; the others are being converted to export facilities. The imported LNG is raising costs for residents of the Northeast. In the winter of 2014, New England was paying 15 times more for imported LNG than the cost of natural gas from the Marcellus Shale deposits in Pennsylvania.[ii]
The Supreme Judicial Court of Massachusetts ruled against electric utilities signing 20-year contracts for natural gas pipeline capacity, selling that capacity to power plants and passing the costs to their retail customers. The plan had electric utilities committing to the pipelines on behalf of the electric generators. The plan would have provided stable financing to expand much needed natural gas pipeline capacity to the region, and would have driven down the cost of wholesale electricity.
The need for the “pipeline tax” arose because power plant owners have been buying natural gas on the spot market, rather than through long-term contracts, which pipeline developers need to have to obtain federal approval. Typically, this is how the financing for construction of pipelines has been done. If there is a demonstrated “public need”, pipelines can be built by those promising to buy natural gas through long term contracts. Among the considerations has been the benefits a pipeline might bring to the region.
Specifically, the ruling blocks a financing plan for a $3 billion regional gas pipeline, the Access Northeast pipeline project, which was intended to expand the existing Algonquin gas pipeline in Massachusetts, Rhode Island and Connecticut. Access Northeast was expected to save New Englanders approximately $1 billion a year.
This is the second project to be blocked in recent months. In April, Kinder Morgan, the nation’s biggest energy infrastructure company, dropped its plan for the Northeast Energy Direct project because of a lack of assurances that electricity ratepayers would pay for the $3.3 billion pipeline. The Northeast Energy Direct plan would have included a spur line into Connecticut to bring natural gas from the Marcellus shale regions of Pennsylvania.[iii]
Without the pipelines, New England will have insufficient natural gas capacity for electric generation during cold winters. During the Polar Vortex winter of 2013 and 2014, insufficient natural gas infrastructure cost electric consumers $2.5 billion dollars.
Natural Gas production in the United States increased 42 percent between 2000 and 2015, making the United States the largest producer of natural gas in the world. Hydraulic fracturing has made extracting it extremely cost effective and much cheaper than LNG, which New Englanders must buy due to insufficient pipeline capacity.
Tedious Pipeline Approval Process
Under the Natural Gas Act of 1938, companies wanting to build interstate pipelines must obtain certificates of public convenience and necessity from the Federal Energy Regulatory Commission (FERC). The approval process is complex, expensive, and time consuming – often taking as much as three years. Before officially applying, however, applicants must go through a six-month pre-filing process, submitting reports on the expected construction and environmental impacts. After the pre-filling process, FERC begins its official review, but the timeline is uncertain and extensive. For example, Maine’s Down East Pipeline, which was filed for approval in December of 2006–over a decade ago–is still awaiting a decision from FERC. This slow process compares to less than 30 days for states to permit oil or natural gas wells.
Underground pipelines are the safest mode of energy transportation in the nation. There is a vast 2.5 million mile network of pipelines crisscrossing the United States. However, existing pipelines do not have enough capacity to meet growing demand, particularly when coal-fired and nuclear power plants are being prematurely retired. New England is over 50 percent dependent on natural gas for its electricity generation and needs dependable sources of natural gas to keep both its residential customers and its electricity generators supplied with natural gas. However, natural gas infrastructure projects are being blocked, making the region rely on much more expensive LNG imported from other nations.
Source: Institute for Energy Research
Date: Aug 30, 2016