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Permalink Reply by tc on April 28, 2014 at 3:40

WSJ article dated 4/27/14 about pipeline issues.

Why Marcellus Shale Gas Doesn't Get to New England

Nearly 15 million people in New England live within driving distance of America's biggest natural-gas field, yet heating and electricity prices reached a record for the region this winter.

As states stretching from Massachusetts to Maine thaw out from bitter cold, questions linger about why New England hasn't benefited from the energy boom in the nearby Marcellus Shale.

The short answer is not enough pipelines. And the reason is an impasse between pipeline operators and power plants over how to pay for new capacity.

The problem is that pipeline operators want long-term contracts in place before they spend the hundreds of millions of dollars necessary to build a new pipeline or expand an existing one.

But power companies, which buy gas to fuel generators on a need-to-have-it basis, work on a different timetable. Independent power-plant operators must supply electricity to utilities at the lowest cost possible, and utilities are restricted in the extent to which they can pass on costs to customers.

The result is that the power industry long has been wary of getting locked in to long-term contracts with higher prices than necessary. Regulators are proposing a tax to bridge the gap.

"Pipelines don't get built on speculation," said Don Santa, president of the Interstate Natural Gas Alliance of America, which represents pipeline companies.

Power plants typically buy gas that remains once heating customers' needs are met. That usually is a workable strategy but not when the mercury plummets and gas demand soars. At one point in January, New England couldn't get the natural gas for electricity that it needed or couldn't get it at the right price. Nearly 75% of the region's gas-burning power plants sat idle. Plants that burn oil or expensive jet fuel were used to keep the lights on.

New England gas prices rose to a record above $90 per million British thermal units in January, according to IntercontinentalExchange Group Inc. Boston's wholesale gas price averaged $24.09 per million BTUs for January and February, compared with just $3.37 in Pennsylvania. Even frigid Chicago paid less than half what Boston did, averaging $10.79 per million BTUs.

New England's pipes are so strained that the area would need 1 billion to 2 billion cubic feet of additional capacity to prevent price spikes during peak demand, regulators and consulting firms said.

Some new gas lines are on the drawing board, but expansion plans are far from complete.

Spectra Energy Corp.  in Your Value Your Change Short position three years ago proposed adding 1 billion cubic feet a day of capacity to send more gas from Appalachia to New England. But power plants didn't sign up for space, and Spectra dialed back the added capacity to around 340 million cubic feet a day. The project won't be completed until the end of 2016.

"We can't move as much as the market would like to see," said Spectra Vice President Richard Kruse. "We certainly had hoped that the electric market would step up, but we understand why they didn't."

The demand crunch will be compounded as New England's coal-burning power plants close. In 2000 only 15% of the electricity used in Connecticut, Massachusetts, Vermont, New Hampshire, Rhode Island and Maine came from natural gas. That has increased to nearly 50% as coal and fuel-oil plants have been phased out to meet tighter clean-air regulations.

The disconnect between pipelines and power plants has become a costly standoff for consumers, said Gordon van Welie, chief executive of ISO-New England, which runs the region's wholesale electricity markets. "We've lived with this problem for 10 years, and it's been getting steadily worse," he said. Without new capacity to move gas, the region's prices will only climb, and the power grid could become unreliable, ISO-New England said.

To break the logjam, the New England States Committee on Electricity, whose members are appointed by the region's six governors, wants a tax to fund pipeline construction. The tariff would be levied on power companies and ultimately passed on to consumers. Estimates haven't been released on how much consumers would have to pay.

Pipeline operators generally support the tariff proposal. A spokesman for Kinder Morgan Energy Partners  LP expressed hope that the tax would bridge the funding gap. The company is moving forward with a plan to add 1 billion cubic feet a day of gas capacity to its line that sends Marcellus Shale gas to New England.

The New England Ratepayers Association said a diverse supply, including coal, was the way to temper prices. "We love natural gas, but I don't think building capacity to 60% or 70% of the region's power-generating capacity is a good idea," said association President Marc Brown.

Some New England utilities said recently that they would be willing to sign long-term contracts with pipelines if they could be ensured a way to recoup the cost.

France's GDF Suez SA, GSZ.FR in Your Value Your Change Short position which has 1,400 megawatts of natural-gas-fired generation in New England, said the solution isn't to flood the region with more gas it rarely needs but to better coordinate natural-gas supply and electricity demand.

Public funding for a massive pipeline-building program, said GDF executive Frank Katulak, is like "trying to kill a cockroach with a sledgehammer."

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Permalink Reply by Skip Peel - Mineral Consultant on April 28, 2014 at 3:54

Public electric utilities and merchant power generators may be hesitant to commit to long term NG supply contracts but the chemical and LNG industries do not seem to have that problem.  Instead of moving north  to supply electric generation needs Marcellus supply may be coming south.

WILLIAMS TO SUPPLY SABINE PASS LNG VIA GULF TRACE

HOUSTON, Apr. 25 04/25/2014 By Christopher E. Smith OGJ Senior Technology Editor

Williams Partners LP and its wholly owned subsidiary Transcontinental Gas Pipe Line Co. LLC (Transco) plan to build Gulf Trace, a 1.2-million dekatherm/day (1.16 bcfd) expansion of the Transco pipeline system to serve Cheniere Energy Partners LP’s Sabine Pass Liquefaction project being developed in Cameron Parish, La. Sabine Pass Liquefaction LC will be Gulf Trace’s anchor shipper. Williams will hold a binding open season, scheduled to end May 8, to gauge additional market interest in the expansion.

The Gulf Trace project will make Transco’s production-area mainline and southwest Louisiana lateral systems bidirectional from Station 65 in St. Helena Parish, La. to Cameron Parish, La. In addition to the pipeline reversal, Williams plans to add an 8-mile 36-in. OD lateral pipeline and two compressor stations to provide firm transportation service to Sabine Pass LNG.

Williams estimates Gulf Trace will cost about $300 million, with a target in-service date of early 2017, subject to regulatory approvals.

The Sabine Pass LNG export plant is under construction and scheduled to be completed in phases starting as early as fourth-quarter 2015. Once complete, the Sabine Pass LNG terminal will be the first large-scale LNG export site operating in the US. Sabine Pass Liquefaction’s project is supported by long-term contacts with several LNG off-take shippers, including GAIL (India) Ltd., BG Group, and Gas Natural Fenosa (OGJ Online, Dec. 12, 2011).

Unrelated to Gulf Trace, Williams said it is pursuing several other large-volume projects to serve growing domestic demand for natural gas. By yearend 2017, Williams Partners expects to add roughly 3.4 million dekatherms (3.3 bcfd) of natural gas transportation capacity delivering northeast supplies via expansions including the Dalton Expansion Project (OGJ Online, June 1, 2012), Atlantic Sunrise (OGJ Online, Feb. 21, 2014), Leidy Southeast (OGJ Online, Aug. 3, 2012), Virginia Southside (OGJ Online, Nov. 22, 2013), and others.

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Permalink Reply by jim weyland on April 28, 2014 at 10:26

skip,

the petrochems and liquifiers are 'banking' on buying domestic gas as their 'raw material' at prices way that are under the world prices for their manufactured products: petrochemicals, primarily derived from gas liquifiables, and lng which by definition is 'made' from methane.

as of now, the 'world view' is that in so doing, its a safe bet. and if that wasn't the perception 'bankers' wouldn't be coughing up all the shekels that're funding a good portion of the new build preochem and lng facilities

the regulated gas utilities look at things from a different point of view.  note: gas utilities make no money on the gas they buy/resell. rather, they make their money earning a regulated rate of return on their rate base assets.

so, there's no benefit to them if they 'go long' at what later turns out to be a good price; any benefit is passed on to the customers.

on the other hand, if they were to go long at a price that was later seen to be way over market, the rate payers would commence to raise bloody hell when their gas bills went up.

note: the best ears in the world belong to the bureaucrats that regulate the gas utilities. upon hearing of the customers 'pain', the regulators would then release the hounds of hell on any utility that 'guessed' wrong.

so, from a gas utility executive's point of view in going long: it's heads you win and tails i loose. now, they're not the sharpest tools in the kit, but they can figure this proposition out. 

imo, there's a misconception about the economics of a new build pl. there, the 'bankers' couldn't care less if gas never  flowed though a project they financed. for all they care, you could grow mushrooms in the thing.

what they care about is that the pl is able to sell all of the pl's transportation capacity to customers on a firm basis, i.e. use or pay basis for a couple of decades. 

if a pl project makes economic sense from the bankers perspective, it will get built. and, they're 'agnostic' as to whether the shippers buy short term, long term or even no gas at all.

p.s. of tgpl's two announced bidirectional flow projects, the dalton expansion project is, imo, the more interesting. it involves installing 'plumbing' at their existing compression stations that would serve to let gas move north in one setting of the valves and south with the other.w/dalton they'll be able to recieve marcellus via existing pl interconnects and ship it reverse flow south to their southern growth markets such as fl, sc, nc, ga, ect. and to flow, north, when it was cold up there.

the recently announced gulf trace project would do the same thing except its on existing pipe on the gom coast, but, imo, its likelihood of being built isn't nearly as good as dalton's because every pl on the coast has surplus capacity these days

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Permalink Reply by jim weyland on April 28, 2014 at 12:51

i've just now proof read my post, above.

in addition to several other minor errors, in the second line of the fifth paragraph from the bottom, i used the word 'never' when i should have used the word 'ever'.

sorry for the sloppiness.

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Permalink Reply by Two Dogs, Pirate on April 28, 2014 at 13:28

Jim not to be putting your writing style down in any sort of way but you tend to abridge the use of some words that many here on GHS can't relate to your meaning (ie "pl" for pipeline). That is an easy one for me but I can see a problem with others trying to understand what you are saying. I am not a very good speller, so I sometimes make mistakes but they may still sound a little like the words. You are one of the more educated posters here on GHS, been there and done that, but some of the folks are not in the same biz as you and what you may take for granted as everyone understanding may be Greek to them.

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Permalink Reply by jim weyland on April 28, 2014 at 15:20

td,p, 

your points are taken and understood, sir.

jim weyland

p.s. all through school, i couldn't write clearly or concisely to save my life. and, i still can't. the strategy i came up with in school for hand written test answers was that i'd write as messily as possible. but, i'd clean up my hand writing for the few fifty cent words i'd lay in, here and there. that strategy, got me through classes that i'd never pass today w/the kids all having to submit things via a computer.

p.p.s if not for spell-check, my writing would be at or below the level of ned and his first reader.

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Permalink Reply by Two Dogs, Pirate on April 29, 2014 at 6:28

Jim remember Dion's post from the other day? It was loaded with fifty cent words.

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Permalink Reply by jim weyland on April 29, 2014 at 8:20

i think this article gives some insight as to the state of pipeline affairs, today.

http://www.bloomberg.com/news/2014-04-28/boardwalk-says-bluegrass-n...

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Permalink Reply by Two Dogs, Pirate on April 29, 2014 at 8:43

There was a lot of opposition the the Bluegrass Pipeline in Kentucky where they would have had to lay some new pipe. Plus the Kinder Morgan/Mark West Y-Grade looks like it might get approved. I am kinda thinking like the Boardwalk people that it may be a year or two too early.

Permalink Reply by Dion Warr, CPL on May 4, 2014 at 17:38

TD:

Oh, fine... Throw me under the bus.

Seriously, Jim, your strategy is one that worked great for me through high school and college whilst writing technical papers. Where my bubble was burst was a college freshman writing class. My first assignment was a fairly simple persuasive paper. I used all those wonderful 25-cent (and up) words that I was encouraged to learn and use for taking standardized tests and getting into college and generally coming off as knowing what one is talking about. I got the paper back the next week with a big fat C and enough red ink that it looked as if someone has bled on the page. After reading the comments and incredulously circled and question-marked words and usage, I marched right up to the teacher at the end of class and asked how my paper could have been that bad. I used "good" words and used them properly - no comma splices, no run-ons, no split infinitives, etc.

The response I got was, "I read your paper. I saw the grammar; I even looked up some of the words that you used. But, this is a writing class - you have to be able to communicate effectively, and use words that your audience can understand. Nobody wants to have a dictionary next to them as they read. You've already lost your audience."

It's something I struggle with at times, and it's especially difficult when dealing with technical subjects for which we have a wont to create words to convey entire principles chiefly to not have to explain the entire concept every time that concept is employed.

The flip side of this is of course that we embrace the use and transformation of these words not only as shorthand for concepts but also to create a context. In a world where more and more we rely upon the 'sound bite', the description 'in 25 words or less', or the 'executive summary', the control of the context becomes paramount. For instance, at the moment, "frac(k)ing" is a word that has been contorted well behind its original conceptual purpose and thanks to anti-industry forces now triggers a knee jerk contempt and revulsion not seen since The China Syndrome (still evocative, even after Chernobyl and Fukushima, though not as much among the youngest of us). Thus, for the sake of brevity, we end up losing the communication of the concept for all the other symbolism and other attachments to the word or phrase, to the detriment of conveying all of the ideas (or, alternately, only conveying the set of ideas that one particular group wants attached to a word or phrase). So, probably in error at times but with all too good intentions, I still find myself using a hundred words where ten might do, for fear of not doing the justice of a proper thoughtful response.

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