New England’s strong and increasing reliance on natural gas is well documented, with almost half of electricity currently generated by natural gas, up from just 15 percent in 2000, according to ISO New England.
That trend line will only increase in coming months and years with more and more homes and businesses converting to natural gas from heating oil. NStar has estimated that conversions here have tripled over the past three years and National Grid said conversions in Massachusetts and New Hampshire increased 34 percent.
All these are positive trends, particularly considering the abundance of cheap, available natural gas – and the possibility of far more due to the shale gas revolution happening throughout the nation.
However, the region will need to do more to increase our capacity to bring this abundant energy source to our businesses, institutions and homes. That presents a problem which New England ought to see as an opportunity and move quickly to expand the available pipeline for natural gas into the region.
There is a clear need for additional gas pipeline capacity in New England, not only for electric generation on the relatively infrequent peak gas demand days and to fill the gaps from the growing use of intermittent renewable resources but, in general, for the rapidly growing end use demand for gas.
The need for new capacity is clear in the rapidly increasing cost of basis, or primary delivery cost. This growth will continue, likely unabated, until there is greater capacity.
In New York, the key financing for an expansion was secured when marketers and transmission companies signed on to firm contracts after a period of significant increase in basis costs. As a result marketers are now concentrating in that key new open market. After this new capacity, New York’s basis cost is now approximately $1.00/therm lower than basis costs for Massachusetts end users.
For New England, it doesn’t make sense to wait until the cost of basis increases to the point where it hurts commercial, industrial and residential customers. For PowerOptions members who use roughly 13 million dekatherms annually, that would translate into $13 million of savings at New York’s basis cost.
While it is a bad idea to saddle the electricity market with the full cost, smart expansions of the pipeline capacity makes sense and regulators and the marketplace should consider a range of expansion solutions and include all potential sources of financing support.
The truth is, we can’t continue to provide the incentives we do to end users for the conversion from oil heating and steam to natural gas and then not expand our ability to bring more gas into the region. That math doesn’t add up.
Bottom-line, this is a very complex problem. There are no simple answers and a wide net of potential solutions must be cast. But simple answers like greater efficiency and leak prevention in our pipeline are simply not enough. Smart but bold action is needed – and soon.