Ignoring New England Gas Supply Problems Not an Option

read | Share:

Just this week the owners of Vermont Yankee Nuclear Plant announced that the plant will be closed at the end of 2014. Entergy, the plant’s owner and operator, sited economics for the reason for the eventual shutdown. There has been much controversy regarding Vermont Yankee over the last few years, especially since the Fukushima disaster in Japan, and many will applaud this closure. But the loss of 620 MWs of relatively cheap and reliable electricity will impact regional energy prices.

Gas and power prices in Boston already showed extreme volatility last year as there were extreme price spikes in both regions during periods of extreme cold. There are several reasons. Traditionally there were three main avenues of natural gas supply into Boston, but all three are being changed.

1. From the east, Algonquin and Tennessee Gas Pipelines are the primary supply route. However, capacity on these pipelines is fully subscribed with no expansions on the horizon until at the least the end of 2016.
2. Supplies from Canada provide a “backdoor” into the Boston region. Sable Island is an offshore production play, but its output is less than 40% of its peak from a few years ago. And the Deep Panuke field’s potential as a replacement is questionable due to delays in startup and significant local Canadian demand that could limit deliveries to U.S. markets.
3. LNG is another backdoor option into either of two facilities. Both Canaport in Canada and Everett local to Boston have traditionally delivered supplies crucial to meeting winter demand.  But high international natural gas prices have discouraged imports.

Growing demand from power generators for natural gas, as well as increased industrial and commercial demand, has stressed the system at the same time that supplies are constrained. The result last winter was huge prices spikes in both spot natural gas and power spikes. Last February was the worst with spot prices delivered to Boston exceeding $16 per MMBtu and power prices over $120 per MWh. And prices for future winters have moved higher to compensate for the risk of a repeat. This has led to end-user frustration as much of the U.S. benefits from low prices due to prolific shale gas production. New gas pipelines to New York have reduced prices in nearby states, but New England is not seeing this improvement.

To avoid repeats of winter price spikes, the New England Independent System Operators is attempting to utilize fuel oil generation to reduce reliance on natural gas in the winter time. However, their program appears to be underfunded and they were not able to garner the amount of generation needed to alleviate market concerns.

Now on top of these problems, Vermont Yankee is retiring. The impact will be increased reliance on already constrained regional natural gas infrastructure. The news immediately pushes up regional gas winters for next winter by $0.50/MMBtu and power prices followed.

For now, there does not appear to be a short-term solution. For customers, there is no simple solution that will provide lower prices. But it is clear that ignoring the problem and hoping that it will go away is not the answer.

 Follow Hans Rottmann on Google+