Frigid weather causing spike in natural gas prices

FRIGID LOW TEMPERATURES are pushing up energy demand across New England, sending the price of natural gas soaring and prompting many of the region’s power generators to switch from gas to oil.

The conditions are somewhat reminiscent of the polar vortex that enveloped the region in the winter of 2014 and prompted the debate about whether the region needs more pipeline capacity to keep natural gas prices in check.

A spokeswoman for ISO-New England, the region’s power grid operator, said on Thursday that “high demand for natural gas is causing natural gas pipeline constraints that are resulting in high natural gas prices.”

Bloomberg News reported on Tuesday that spot wholesale prices in New England for natural gas more than tripled to their highest level in more than three years, turning the region into “the world’s priciest market.”  The price of gas for next-day delivery in New England was $35.35 per million British thermal units, a level not seen since February 2014, Bloomberg reported.

According to the ISO-New England website, the high cost of natural gas has prompted many power generators with dual-fuel capability to switch from gas to oil, which increases power plant emissions.

As of 1:30 on Thursday, the ISO-New England website said the region was relying on oil for 31 percent of its power generation, nuclear for 26 percent, natural gas for 20 percent, renewables for 12 percent, coal for 6 percent, and hydro for 5 percent.

Typically, natural gas is the fuel used for 49 percent of power generation, followed by nuclear (31 percent), renewables (10 percent), hydro (7 percent), coal (2 percent), and oil (1 percent).

Dan Dolan, the president of the New England Power Generators Association, said the large-scale shift to oil is something he hasn’t seen in three to four years. He said it’s partly a reflection of a long, sustained cold snap coming in the very early part of winter.

During the winter of 2014, cold weather caused demand for natural gas to increase beyond what existing pipelines could bring into the region. Many power generators that relied on natural gas to produce electricity were unable to procure additional supplies, and were forced to shut down. The fallout for consumers from the wholesale price spike during 2014 came the following winter, when electricity prices rose as much as 37 percent as power suppliers feared the same scenario would be repeated.

Since that winter, ISO-New England has taken a number of steps to avoid a repeat, including offering incentives to power generators to stock up on oil (if the generator can run on oil or natural gas) and liquefied natural gas before the winter by offering to compensate them if their fuel goes unused. Previously, power generators had kept limited amounts of backup fuels onsite to avoid being stuck with unused inventory.

ISO-New England issued a cold weather watch for Thursday and Friday, which means extreme cold weather is forecast and the region has a capacity margin of 1,000 megawatts or more. A watch is the lowest level of the three types of alerts – watch, warning, and event.

“Sufficient capacity is expected to be available to meet demand and reserve requirements, and there’s no request for public conservation,” the ISO-New England spokeswoman said in a statement.

Proponents of expanding natural gas pipeline capacity into the region seized on the cold snap to rekindle the policy debate on the issue. The debate subsided for much of the year amid opposition in the Legislature to expanding reliance on fossil fuels and a Supreme Judicial Court ruling that stymied a Baker administration bid to finance new gas pipelines with charges on electricity customers.

Michael Durand, a spokesman for Eversource Energy, a regional utility and a company interested in building new pipeline capacity, said the firm has been monitoring the spike in wholesale energy prices.

“The best way to prevent these dramatic winter price spikes and ensure future electric service reliability is to increase the capacity of existing pipelines that deliver clean, domestic natural gas into New England,” he said in a statement.

Dolan, of the New England Power Generators Association, said the pipeline debate shouldn’t center on the wholesale price for natural gas over a few weeks or even a month. He said the debate should center on pricing over six months or a year. That way, he said, consumers can evaluate the financial benefits of building new pipeline capacity to suppress spending for a few weeks a year.