More natural gas, not LNG, is the answer

Region needs new pipelines, not more tankers

AS NEW ENGLAND PREPARES for another winter, there is a growing consensus among energy policy makers in New England that more natural gas is needed to mitigate the high cost of electricity.  After a broad investigation into the cause of New England’s high electricity prices, the Massachusetts’s Department of Public Utilities (DPU) recently concluded that “increasing regional gas capacity will lead to lower wholesale gas and electricity prices.”  The DPU did so after considering substantive comments from 57 stakeholders, including many environmental groups opposed to natural gas.

Massachusetts, along with the other New England states, now has a path forward to attract more natural gas supply to lower energy costs. Tennessee Gas Pipeline Company is proposing to construct an underground natural gas pipeline, called Northeast Energy Direct, to directly connect the lowest-cost gas in North America from Pennsylvania to gas utilities and power plants in Massachusetts and New England. Tennessee Gas is strictly a transporter of natural gas, and because it does not own or sell natural gas it has no economic interest in its price.

Another proposed remedy is to turn to imported liquefied natural gas (LNG) to help alleviate the critical natural gas shortage facing New England. Not surprisingly, major LNG importers, who have an economic interest in high gas prices, favor this approach. But so do opponents of plans to build new pipelines to transport abundant, low-cost gas available only 300 miles away to Massachusetts and New England. LNG can be used as a stopgap measure, they say, making new pipelines unnecessary and assuring that the focus remains on creating more solar and wind energy.

But the reality is that LNG is simply not the answer to solving the region’s energy problems, especially when compared to the domestic natural gas supplies we will be able to reach once new infrastructure is built to get it here.

One of the basic requirements for any energy resource is that it be reliable from a supply, price, and delivery perspective. LNG, which is imported in part from politically unstable countries like Yemen, poses reliability concerns that can limit its availability. What’s more, LNG is sold on a global market, with shipments going to the highest bidder, meaning New England has to compete with many other potential buyers.

In addition, when the region is able to secure shipments for the peak-demand winter months, LNG is delivered to Boston by massive marine tankers from around the world, a process that carries a host of logistical and operational concerns, as well as serious security and safety risks. LNG vessels can and do suffer problems delivering LNG from foreign ports to New England, as occurred last winter.

LNG proponents also argue it could be used in conjunction with existing satellite LNG tanks throughout New England. But that approach would require thousands of heavy truck deliveries throughout the winter that also present reliability and safety concerns.

The benefits of natural gas pipeline capacity compared to LNG were recently underscored when local distribution companies (LDCs) in Massachusetts and New Hampshire signed long-term contracts for more than half the gas capacity that would be carried on TGP’s Northeast Energy Direct project. The LDCs wanted to lock in firm commitments for natural gas capacity at a time when some of them have imposed moratoriums on new business and residential customers who want to switch from oil to gas because of the lack of adequate natural gas supplies.

Both the Massachusetts DPU and New Hampshire Public Utilities Commission found that the companies had entered into the contracts based on a sound analysis of the issues surrounding LNG. As the DPU succinctly put it in approving one LDC’s contract, “the company appropriately considered the logistics, safety, reliability, and flexibility associated with LNG as an alternative to the Northeast Energy Direct project, and has appropriately concluded that LNG is not a viable alternative.”

But the major problem in increasing our reliance on LNG is that it will do little, if anything, to reduce electricity costs in New England, the highest in the nation. The region now uses natural gas to generate more than 50 percent of its electricity, a number that will continue to grow as dirty coal and oil facilities continue to be replaced by more environmentally friendly gas-fired plants.

ISO New England, the operator of the region’s power grid, has noted that, because LNG is a globally priced commodity, it tends to be four to five times more expensive than domestic gas, and its cost for New Englanders is wholly dependent on foreign market forces.

A prime example of this dynamic occurred last winter when New England was able to secure significant quantities of LNG for the first time since 2010. According to ISO New England, the deliveries became available for a simple reason: a combination of the highest electricity and natural gas prices in the United States, as well as the highest estimated landed prices for LNG in the world, made the region attractive again for LNG shippers. This winter, another region of the world may be the highest bidder; there’s no guarantee shipments made last winter will arrive this winter at a price we can afford.

Thus, proponents of an LNG solution are asking us to rely on an inherently volatile LNG market for a commodity that not only is an unreliable energy resource but can’t compete with domestic natural gas on price.

They are also asking us to bet on a number of conditions in the world staying the same – for instance, that China will continue to rely primarily on coal to produce energy, that Japan will continue to utilize its full complement of nuclear reactors, and that the world transportation sector will continue to run mainly on gasoline and diesel fuel. If these conditions change, as they inevitably will (China is already pursuing its Climate Action Plan to reduce its carbon dioxide emissions by 60 to 65 percent by 2030) the demand for LNG will spike and already-high prices will go higher still.

LNG proponents also underestimate the scope of the problem they seek to address. They say the demand for natural gas for heating and electricity generation exceeds pipeline capacity on 50 days during the heart of the winter. But recent studies, including one by ICF International, a highly regarded consulting firm, have concluded that this number will continue to rise.

ICF projects that by 2020 demand will exceed capacity under normal weather conditions on 63 days – roughly three-quarters of the entire winter – and on 113 days by 2035.  Based on ICF’s calculations, approximately 7,500 MW of natural gas-fired generating capacity by 2020 would not be available during peak winter periods. When ICF considered severe winter days like New England has experienced more recently, the projected duration of capacity deficit days was even longer, ranging from 78 days in 2020 to 122 days in 2035.

No matter the actual number of days natural gas demand exceeds supply, LNG imports are not a panacea for the serious pipeline constraints that have pushed up our energy costs, burdening businesses and consumers, and slowing economic growth.

More than ever, we need to stop papering over the problem and implement a real solution by building new natural gas infrastructure. The long line of studies that have examined the capacity shortage have all found that the gas delivered by additional pipelines will enable the region to reliably and affordably run electric plants, lowering electricity prices, and meet the needs of millions of residential and commercial gas customers.

Closing the gap between the region’s natural gas supply and demand will also avoid situations like the past few winters, when a lack of adequate gas capacity forced electric generators to burn more than a million barrels of oil. Many more barrels were used to heat homes and businesses. The results were a large increase and a step backward from the efforts to reach the state’s climate goals.

Finally, it is ironic that many proponents of LNG are trying to slow down or halt new pipelines because of concerns about hurting development of renewable energy sources. Far from inhibiting this build out, increasing domestic natural gas capacity will support the adoption of wind and solar power – as many experts and the Obama administration itself have recognized – by serving as a reliable backup fuel to quickly ramp up electric generators when the sun doesn’t shine or the wind isn’t strong enough to produce the electricity the region demands.

There is another irony. Technology and innovation have combined to discover and make available one of the world’s largest natural gas reserves in Pennsylvania. Yet New England, unlike other regions, is unable to fully take advantage of these supplies to meet its energy needs because the pipelines that access this gas and serve the region are at capacity and can’t meet demand.

Meet the Author

Curtis Cole

Director of business development, Tennessee Gas Pipeline Co.
The time has come to put aside inadequate measures like LNG that fall far short of solving our energy problems. We need more domestically produced low-cost gas, transported safely and reliably by pipelines, the sooner the better.

Curtis Cole is director of business development for Tennessee Gas Pipeline Company.