October 2022, Vol. 249, No. 10
Features
US Northeast Faces Power Reliability Crisis Without More Gas Infrastructure
By Jeff Awalt, Executive Editor
(P&GJ) — The energy crisis gripping Europe has highlighted the dangers of unreliable imports and a rushed transition to renewables. The U.S. Northeast could soon face similar reliability issues as well, New England’s grid operator and a group of industry associations warned federal regulators.
Problems siting infrastructure in the Northeast have escalated in recent years, with numerous projects delayed or canceled because of lengthy and expensive legal and regulatory challenges. The inability to expand natural gas pipeline capacity has heightened concerns of grid reliability, particularly in the New England states.
“During the coldest days of the year, New England does not have sufficient pipeline infrastructure to meet the region’s demand for natural gas for both home heating and power generation,” Gordon van Welie, president and CEO of Independent System Operator New England (ISO-NE) wrote in an August 29 letter to Secretary of Energy Jennifer Granholm.
That statement and others from ISO-NE – an independent, not-for-profit corporation responsible for keeping electricity flowing across the six New England states – has spurred concern among utilities and customers alike. They also helped galvanize industry associations seeking to improve energy reliability in the region, including several that released a statement prior to the Federal Energy Regulatory Commission’s (FERC) New England Winter Gas Electric Forum in Burlington, Vermont.
“New England is at a pivotal crossroads and faces very real, crucial issues that we urge this forum to address to ensure there is sufficient natural gas infrastructure available to serve the needs of power generators in addition to the utilities, manufacturers, businesses and households that rely on natural gas and who also require and deserve reliable service,” read the joint statement of the American Public Gas Association (APGA), American Petroleum Institute (API), Independent Petroleum Association of America (IPAA), Interstate Natural Gas Association of America (INGAA) and Natural Gas Supply Association of America (NGSA).
The organizations emphasized that “New England’s ability to make a timely transition to lower emissions energy hinges on the flexibility and reliability of quick-ramping natural gas and sufficient natural gas capacity to handle increased ramping demand.
“In ISO-NE’s own words: ‘Without adequate gas, the region may not be able to meet the demand for home heating and electricity – and when reliability suffers, the clean energy transition suffers.’”
That theme has resonated among many against the backdrop of energy woes across the Atlantic.
“The energy crisis currently happening in Europe should be a cautionary tale for the United States,” INGAA President and CEO Amy Andryszak told P&GJ on the date of FERC’s New England forum.
“Europeans are facing insufficient fuel inventories and extremely high energy prices because of the way they have managed their energy transition,” Andryszak said. “We can avoid that same fate here in the United States, but it is going to require continued use of natural gas and additional natural gas infrastructure.”
In a statement to FERC, Kinder Morgan’s president of Interstate Gas Pipelines, Kim Watson, explained that ISO-NE’s self-described “perilous position” does not imply that there is an issue with the reliability of natural gas pipeline infrastructure serving New England.
Watson, who also serves as chair of INGAA this year, cited three main reasons that New England is teetering on the edge of a reliability crisis.
First, although pipelines reliably deliver on their firm contractual commitments, there is not enough natural gas pipeline and storage infrastructure serving New England to provide firm transportation to natural gas-fired power generators that have not already contracted for it.
Second, natural gas-fired power generators in New England do not have an incentive to purchase firm transportation, even if it were available.
And third, regional and state policies have not recognized that greater reliance on variable renewable energy resources requires further development, not obstruction, of natural gas infrastructure.
“The current power market structure fails to provide generators with certainty around when they will be needed or the opportunity to recover the fixed costs associated with entering into advance, longer-term arrangements for their fuel supply and pipeline transportation,” Pat Jagtiani, executive vice president of NGSA told P&GJ.
“We believe regulatory reform should take place to encourage more sustainable supply practices that allow gas generators to prearrange for fuel supplies through contracting with pipelines, suppliers, third-party markets and LNG [liquefied natural gas] providers,” Jagtiani said, adding that this would provide the commitments required to fund investment in expanded natural gas infrastructure and secure needed LNG supply.
APGA President and CEO Dave Schryver echoed the concerns of other association leaders, pointing out that customers have paid higher average costs for power in the Northeast, in part, because of cancellations and delays in pipeline projects that could ease congestion and narrow price differences between Appalachian Basin production areas and energy demand centers.
“We know that many of the customers in New England states would love to have more natural gas capacity and more supply, because higher availability will bring lower prices, as well,” Schryver said.
“One of the biggest hurdles a lot of companies run into now is the number of lawsuits being filed to challenge pipeline construction,” he added. “That adds costs and time to the development of a pipeline, which in some cases has just forced the pipelines to throw up their hands and walk away from projects that would have benefitted a lot of people.”
In fact, a total of 4.75 Bcf/d (135 MMcm/d) in cumulative natural gas takeaway capacity out of the Marcellus and Utica shale formations has been cancelled since 2017, much of which was intended for delivery to Northeast states.
The most recent of those project cancellations was the 1.11-Bcf/d (31 MMcm/d) Penn East Pipeline, which fought a barrage of legal and regulatory challenges throughout its construction that caused project costs to soar. It followed the cancellation of three other projects – Constitution, Diamond East and Atlantic Coast – that would have added 3.65 Bcf/d (103 MMcm/d) of cumulative capacity.
Another 2.4 Bcf/d (68 MMcm/d) of cumulative capacity out of the Marcellus has been delayed or put on hold, including the Northeast Supply Enhancement (NESE), Northern Access and Mountain Valley projects.
It’s a worrisome trend for ISO-NE, which has been raising the alarm over New England’s electric reliability for years as regional demand and reliance on renewable energy sources for power generation continues to grow.
“Over the course of the next two decades, our region’s electric grid will likely more than double in size, expanding to incorporate vast amounts of renewable resources and serve increasing demand for electricity as more sectors decarbonize,” ISO-NE’s board Chair Cheryl LaFleur and van Welie wrote in a joint letter within its July “2022 Regional Electricity Outlook” (REO).
“This transformation is already well underway in the region’s power system, and the impact it will have on New England for generations to come cannot be overstated,” they wrote.
But the clean energy transition will take years to complete, Watson said, and clean energy resources and transmission will not be in place in time to address the reliability crisis facing New England’s electric bulk power system.
Drawing on 25 years of experience planning the region’s power system, as well as expertise from the industry at large, the 2022 REO identified the following four pillars ISO-NE said are critical to achieving and maintaining a clean, decarbonized electric system:
Significant amounts of clean energy to power the economy with a greener grid
Balanced resources to keep electricity supply and demand in equilibrium
Energy adequacy – a dependable energy supply chain and/or a robust energy reserve to manage through extended periods of severe weather or energy supply constraints
Robust transmission to integrate renewable resources and move clean electricity to consumers across New England
The shutdown of coal plants and the success of anti-pipeline forces in the Northeast region have put those goals of balancing resources and energy adequacy at risk, according to industry leaders. Additional LNG imports to the region may dampen the impacts of an electricity reliability crisis, Watson noted, but strong global demand makes availability less certain and more expensive.
As noted in her FERC testimony, New England faces a dilemma. While electricity production accounts for nearly half the region’s natural gas demand, only a portion of it is under firm contract. So, on cold days, the available capacity goes to firm transportation holders, such as local gas utilities. As a result, electricity prices can spike dramatically.
ISO-NE has proposed several means of addressing generators’ lack of incentive to purchase firm natural gas transportation, said INGAA, which supports efforts to develop state-regulated, cost-of-service infrastructure investments coupled with contracting for the necessary energy.
It also supports FERC-regulated cost-of-service rates for recovering investments in infrastructure and forward energy supply chain arrangements, as well as “FERC-regulated wholesale electric market tariffs that rely on uniform clearing price mechanisms to incent investments in infrastructure and forward energy supply chain arrangements.”
“New England cannot afford to debate implementation of these measures for years as part of a drawn-out stakeholder process or to find out years later that the commission does not approve whatever implementation plan ISO-NE’s stakeholders proposed,” according to Watson.
New England’s energy problems aren’t limited to power generation. In recent years, some natural gas local distribution companies (LDCs) have imposed moratoriums on new residential and commercial gas service due to infrastructure limitations. Industry representatives are quick to point out the irony of natural gas shortages in the Northeast with massive proven reserves in the nearby Appalachian Basin.
It’s a challenge that Marcellus Shale Coalition President David Callahan and his staff are working to overcome. The organization represents companies engaged in all aspects of natural gas development, including exploration and production, midstream gathering, processing and transportation, as well as the suppliers and contractors who work with the industry.
“It’s rather astounding that we’re talking about the years 2022 and into 2023 in one of the world’s most advanced economies and worrying about the availability of energy when several hundred miles away vast amounts of energy are being developed, and it’s just waiting to be delivered. What we need is the infrastructure to get it there,” Callahan said in an interview.
“What it takes is government policy to allow infrastructure to reach New England, to ensure that consumers are paying reasonable rates and that they have availability of supply for their homes and businesses – not just for natural gas, but for power generation as well,” he said.
For any proposed project requiring authorization under Natural Gas Act Section 3 or 7 to serve New England, INGAA said, FERC should at least issue an order on the certificate application within 18 months, approve or deny any qualifying rehearing requests within 30 days and coordinate state and federal agency reviews to prevent any from using delay to obstruct a project.
One industry representative, seeking an upbeat note, said it is positive that the associations’ voices were being heard at FERC’s New England forum. But others said talk has gone on for too long and called for regulators to act now. In her statement to the FERC forum, Watson emphasized that communication and coordination cannot create capacity.
“Additional communication will not address the fundamental issue that there is not enough pipeline infrastructure to serve both LDCs and natural gas-fired generators on New England’s coldest days,” she wrote.
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