Tight pipeline capacity pushes New England natural gas prices higher
By Erin Ailworth
THE BOSTON GLOBE | August 05,2013
Wholesale natural gas prices in New England rose twice as fast as most of the country in the first half of the year, largely due to a lack of pipeline capacity in the region to meet growing demand for the fuel, according to the U.S. Energy Department.
Spot market prices soared an average of 146 percent in New England in the first six months of the year from the same period a year ago, compared to 40 percent to 60 percent in nearly every other part of the country. Only New York, where the wholesale price jumped 112 percent, experienced a similar increase.
The biggest jumps occurred during extended cold temperatures last winter, which increased demand faster than sufficient supplies could reach New England, Energy Department analysts said. “Supply constraints in the region caused spot prices to spike when demand peaked this winter,” they concluded in a recent report.
How consumers will be affected remains to be seen. Price jumps in wholesale markets don’t always translate into higher monthly bills because utilities buy much of the natural gas and electricity they distribute through long-term contracts, which help moderate temporary price spikes.
But Gordon van Welie, chief executive of ISO New England, the region’s grid operator, said recent natural gas price increases have been large enough and sustained long enough that they could increase electric and natural gas rates when local utilities seek their semi-annual fuel adjustments in the coming months.
In Massachusetts, natural gas generates 71 percent of the state’s electricity and heats nearly half its homes.
“For the most part, consumers haven’t seen this yet,” he said. “But it’s coming in the next round.”
Utilities said it is too soon to tell when wholesale price increases may show up in residential rates. Caroline Pretyman, a spokeswoman for Northeast Utilities, the parent company of NStar, said there will not be an immediate impact, but the price spikes could affect rates this winter.
“An uptick on the spot market today may or may not translate to increased home heating prices tomorrow,” said Deborah Drew, a National Grid spokeswoman.
Natural gas rates have generally declined in recent years as abundant supplies extracted from U.S. shale rock formations helped lower prices. That, in turn, has led consumers and electricity producers to increase their use of natural gas as a cheap fuel source, which has squeezed pipeline capacity.
Houston pipeline company Spectra Energy Corp. is pushing a proposal to expand the Algonquin Gas Transmission pipeline to bring more of the fuel into New England. At ISO New England, van Welie has repeatedly called for more pipeline capacity.
According to recent reports, another way to ease capacity restraints would be to fix leaks in natural gas pipelines through which significant amounts of the fuel are escaping, including one authored by Shanna Cleveland, a staff attorney at the environmental advocacy group Conservation Law Foundation in Boston.
“Addressing those leaks could play a role in increasing system reliability here and decreasing the need for new natural gas infrastructure,” Cleveland said.