FERC sees lower natgas prices in New England

FERC sees lower natgas prices in New England
21 Oct 2016, 7.18 pm GMT

Washington, 21 October (Argus) — New pipeline infrastructure should lower natural gas prices in the northeast US in winter 2016-17, federal energy regulators project.

But the trend will prove short-lived as reliance on natural gas for power generation grows in New England at the same time as public opposition and economic challenges block construction of new pipelines.

Spectra Energy's 330mn cf/d (9mn m³/d) Algonquin Incremental Market pipeline expansion should start service in November. As a result, natural gas spot prices at Algonquin Citygates — a key northeast US hub — could be $4-$5/mmBtu lower on normal winter days than they would have been without the pipeline addition, the US Federal Energy Regulatory Commission (FERC) said in its 2016-17 winter assessments.

Algonquin Citygate spot prices averaged $3.41/mmBtu in December 2015-February 2016, peaking at only $8/mmBtu during an unusually mild winter. That compares with a high of $30/mmBtu in winter 2014-15 and a peak of $75/mmBtu in winter 2013-14.

The US government weather forecasters project that heating demand across the US, while below long-term norms, could be 13pc higher in winter 2016-17 than last winter. Colder weather likely will bring back price spikes in New England, but the added infrastructure should mitigate the price spikes, FERC said.

The new infrastructure also will reverse price differentials between New England and New York markets. Argus forward curves show Algonquin Citygates trailing Transco zone 6 New York by about 40¢/mmBtu in January-February 2017. By contrast, New England spot price premiums to New York City averaged 58¢/mmBtu in the first two months of 2016.

The new infrastructure is noteworthy as many other major pipeline expansions in New England have been shelved or cancelled in the face of local opposition. US midstream company Kinder Morgan said it would focus on incremental capacity additions amid local opposition. Projects in New York state face equally strong opposition.


New England already relies on natural gas for about half of its power generation needs, up from 15pc a decade ago. The new pipeline capacity entering service offers only a temporary relief as coal and nuclear power plants retire and are replaced by gas-fired plants, New England grid operator vice president Peter Brandien told FERC's monthly meeting yesterday. Another 6GW of non-gas resources, about 20pc of the regional total, is at risk of early retirement, he said.

FERC member Cheryl LaFleur called the statement "ominous" and asked Brandien if the grid operator has plans to boost spare capacity in light of growing reliance on natural gas. "I wish I had a good answer that gave me comfort," Brandien said. "As these resources retire, the region does not seem to be motivated to go down a path of expanding the gas infrastructure."

"The environmental community and the keep-it-in-the ground folks really have struck a chord with the public, and it makes it really hard to build infrastructure" in New England, US Energy Information Administration chief Adam Sieminski said today.

Opposition to natural gas pipelines is not the only factor preventing their construction. Gas utilities hold most priority transportation capacity on the regional pipeline network. Power plants, by contrast, lack economic incentives to underwrite pipeline expansions. A recent court decision scuttled a Massachusetts initiative to add natural gas pipeline capacity in New England by requiring electric ratepayers to pay for new infrastructure.

Lack of pipeline infrastructure will keep New England dependent on LNG imports and heating oil for power generation during winter. Even with prices below $10/mmBtu, the northeast US attracted more LNG cargoes last winter than a year earlier because of lower spot LNG prices in other global markets.