Natural Gas Storage in New England
and the Impact of LNG
on Winter Prices
Energyzt Advisors, LLC
New England Association of Energy Engineers
January 6, 2016
Copyright © 2016 Energyzt Advisors, LLC
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Contents
Objectives
 Discuss the importance of natural gas storage (i.e., LNG) on New
England energy markets
 Review the findings of recent Energyzt research and reports on
winter reliability in New England and the role of LNG
Contents
 Introduction
 Overview of LNG in New England
 Summary of Energyzt analyses on winter reliability
 Conclusions
LNG is a critical aspect of New England’s energy mix
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Introduction
About Energyzt
GLOBAL TEAM OF ENERGY EXPERTS
Energyzt is a global collaboration of energy experts who create value for our
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business decisions that create competitive advantage. With changing
dynamics of the energy industries increasing market uncertainty and
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Members of the Energyzt team have long-standing history working in
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analytics brings a unique set of market insights that are supported by facts
and defensible in a court of law or regulatory hearing.
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Overview of LNG in New England
New England does not have underground natural gas storage
U.S. Underground Natural Gas Storage Facilities by Type (July 2015)
Sources: U.S. Energy Information Administration, Weekly Natural Gas Storage Report, https://www.eia.gov/todayinenergy/detail.cfm?id=23772
New England geography does not provide natural gas storage reservoirs
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Overview of LNG in New England
Instead, New England relies on LNG, which can be stored
New England Natural Gas Supply System
Source: U.S. Energy Information Administration, Gas Delivery System, http://www.eia.gov/naturalgas/review/deliverysystem/2013/
Everett and Canaport store and gasify LNG for injection into New England
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Overview of LNG in New England
There are multiple LNG import facilities into New England
New England LNG Import Facilities
Source: Northeast Gas Association, http://www.northeastgas.org/about_lng.php
Northeast Gateway Project and Neptune provide additional import capacity
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Overview of LNG in New England
On a short-term basis, LNG can double firm pipeline capacity
Interstate Natural Gas Pipelines
into New England
Interstate Pipeline
Algonquin Gas Transmission
Iroquois Gas Transmission
Tennessee Gas Pipeline
Portland Natural Gas Transmission
Maritimes and Northeast Pipeline
Total
Algonquin Incremental Market (AIM) (2016)
Total Including AIM
Firm
Capacity
Capacity
bcf
per
Bcf per day
day
1.087
0.220
1.261
0.168
0.833
3.569
LNG Infrastructure in New England
Facility
Everett
LDC Peak Shavers
North East Gateway
Neptune
Total
Storage
bcf
Deliverability
bcf per day
3.5
16
n/a
n/a
0.715
1.400
0.600
0.750
3.465
0.350
3.919
Source: Energyzt Analysis. Maritimes and Northeast Pipeline includes injections from the Canaport LNG facility.
According to the Northeast Gas Association, LNG delivers 25% to 40% of
design day supply in the winter for local gas utilities in New England, but only
6% of New England’s total annual gas supply.
Source: Northeast Gas Association, http://www.northeastgas.org/about_lng.php
LNG supplies 46 above-ground LNG storage tanks for peak shaving of LDC load
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Overview of LNG in New England
LNG is imported primarily from Trinidad and Tobago
200,000
LNG LNG
Imports
into
Everett,
by Country
Imports into
Everett,
MA by MA
Country
Million Cubic Feet per year
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Everett MA LNG Imports From Yemen MMcf
Everett MA LNG Imports from Trinidad and Tobago MMcf
Everett MA LNG Imports from Egypt MMcf
Everett MA LNG Imports from Australia MMcf
Everett MA LNG Imports from Algeria MMcf
Sources: U.S. Energy Information Administration, U.S. Natural Gas Imports by Point of Entry, updated 12/31/2015
http://www.eia.gov/dnav/ng/ng_move_poe1_a_EPG0_IML_Mmcf_a.htm
New England has imported LNG since November 1971
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Summary of Analyses
Energyzt has issued two reports examining winter reliability
October 2014
August 2015
Prepared for NEPGA
Prepared for GDF Suez
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Summary of Analyses
Study #1: Focus on existing infrastructure
1) REPORT: Winter Reliability Analysis of New England Energy
Markets, prepared for New England Power Generators
Association, October 2014
Question: Is there enough existing energy infrastructure to meet
winter reliability requirements?
Answer:
Yes.
Case study of extreme winter conditions indicate that
reserve margins were still met
Only scenario that indicates potential issues is one where
LNG import capacity is constrained
Existing infrastructure is adequate – focus on commercial arrangements
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Summary of Analyses
Study #1: Case study - January 7, 2014 met reserve margins
LDC Gas Demand in New England
(Billion cubic feet per day)
3.5
MW
Capacity Supply Obligation (CSO)
Capacity Additions > CSO
Available Dispatchable Loads
Outages and Reductions
Generation Unavailable Due to Start Time
NYISO Purchases
NBSO Purchases
HY Purchases
Total Available Capacity
Jan 3,
2014
3.0
Natural Gas Demand (Bcf/day)
ISO New England Capacity Analysis
January 7, 2014
Jan 7, 2014
2.5
2.0
1.5
0
20
40
Heating Degree Day
60
80
ISO-NE Load
Operating Reserve Requirement
Net Capability Required
Capacity Margin
Source: Energyzt analysis of Ventyx, Energy Velocity Suite
30,703
2,980
(4,677)
(5,921)
(1,480)
638
1,594
23,836
21,432
2,360
23,792
44
Source: ISO New England, “January 2014 FERC Data Request”
page 9. Totals in the table may not sum due to rounding
Even under extreme conditions, reserve margins were maintained
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Summary of Analyses
Study #1: Infrastructure is adequate to cover reserve margins
Projected Winter Reserve Margins 2015-2018
Sensitivity Analyses under Extreme Winter Conditions
Sources: Energyzt, “Winter Reliability Analysis of New England Energy Markets,” October 2014
ISO-NE Target Reserve margin set at 13.94% for 2018 to 15.91% for 2015 per NERC 2015 Long-Term Reliability Assessment
The greatest impact was a shortfall in LNG imports – the pipeline from the East
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Summary of Analyses
Study #1: LNG capacity is critical to winter reserve margins
Projected Winter Reserve Margins 2015-2018
LNG Sensitivities under Extreme Winter Conditions
LNG = 1.4 Bcf/day
LNG = 1.0 Bcf/day
Base Case
LNG = 0.7 Bcf/day
Target Reserve Margins
LNG = 0.35 Bcf/day
LNG = 0.0 Bcf/day
Sources: Energyzt, “Winter Reliability Analysis of New England Energy Markets,” October 2014
ISO-NE Target Reserve margin set at 13.94% for 2018 to 15.91% for 2015 per NERC 2015 Long-Term Reliability Assessment
Reduction in LNG imports could adversely impact reserve margins
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Summary of Analyses
Study #2: Focus on diagnosing the problem and the solution
2) REPORT: Analysis of Alternative Winter Reliability Solutions
for New England Energy Markets, prepared for GDF SUEZ
Energy North America, August 2015
Question: What caused the winter price spikes and what are the
most economic solutions to address potential reliability
concerns?
Answer:
Failure to utilize existing energy infrastructure caused
winter price spikes
The market already is responding – ISO-NE winter
reliability programs, pay-for-performance, dual-fuel
investment, LNG contracts
Engage in market-based approaches to contract with
existing energy infrastructure that provides cost-effective
peaking solutions (e.g., dual-fuel and LNG)
Peaking problems require peaking solutions – contracts not construction
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Summary of Analyses
Study #2: Existing infrastructure is adequate
Source: Energyzt, Analysis of Alternative Winter Reliability Solutions for New England Energy Markets, prepared for GDF SUEZ Energy
North America, August 2015
There is adequate energy infrastructure to meet winter requirements
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Summary of Analyses
Study #2: Extreme winter peaks did not utilize existing assets
Source: Energyzt, Analysis of Alternative Winter Reliability Solutions for New England Energy Markets, prepared for GDF SUEZ Energy
North America, August 2015
There is adequate
Existing
energy
infrastructure
infrastructure
was not
to meet
fully deployed
winter requirements
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Summary of Analyses
Study #2: The past three winters, prices were abnormally high
Sources: Energyzt analysis of Ventyx Energy Velocity Suite
Assumption: High prices during periods of high demand = inadequate supply
Initial response by the industry: Build more natural gas pipelines
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Summary of Analyses
Study #2: Peak natural gas demand has been spiky, but flat
Source: Energyzt analysis of EIA Natural Gas Monthly Report
Plenty of excess pipeline capacity outside of the winter months
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Summary of Analyses
Projected Demand and Supply Capacity
(Mcf/day)
Study #2: New pipeline capacity above average daily demand
Projected Demand for Natural Gas in New England vs. Pipeline Capacity
6,000
5,000
4,000
3,000
2,000
Technically Available Pipeline Capacity (Mcf/d)
1,000
0
2016
2018
2020
2022
Forecast Average Daily Demand (Mcf)
2024
2026
2028
Source: Energyzt analysis of AEO 2015, Ventyx. Projected pipeline capacity includes announced pipeline projects already approved and
underway, including the Atlantic Bridge Project, Spectra’s Algonquin Incremental Market (AIM) Project, and other expansion
projects that are expected to increase pipeline delivery capacity by around 600 million cubic feet per day by winter 2017/18
Projections imply that the underlying issue is a not baseload problem
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Summary of Analyses
Study #2: The electricity sector is not driving new demand
Source: Energyzt analysis using 2015 CELT assumptions under normalized weather conditions; Annual Energy Outlook
2015 includes projections using extreme winter conditions in 2013/14 as a base.
Flat electricity demand and efficiency improvements limit electric demand
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Summary of Analyses
Study #2: Higher winter basis differentials; negative in summer
Natural Gas Basis Differentials in New England vs. Henry Hub
Source: Energyzt analysis of AEO 2015, Ventyx
Basis differentials to Henry Hub started diverging in 2012 for summer and winter
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Summary of Analyses
Study #2: LNG prices have been lower than pipeline gas
Source: EIA, http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm
What caused the diversion between LNG and pipeline gas prices?
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Summary of Analyses
Study #2: LNG injections into pipelines had declined
LNG Pipeline Supply to New England
During Winter Season (December – February)
Source: Energyzt analysis, Ventyx Energy Velocity Suite
The low LNG scenario had been realized during winter 2012/13 and 2013/14
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Summary of Analyses
Study #2: Dual-fuel units are available as peaking resources
Total Generating Plants with Dual fuel Capability and
Natural Gas as Primary Fuel
Location
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
New England
# of Plants
11
4
26
2
3
46
MW Capacity
1,258
469
4,192
609
594
7,121
Secondary Fuel Type For NE States by Capacity (MW)
State
CT
ME
MA
NH
RI
TOTAL
Distillate Other
Wood
BIT Coal Kerosene
Fuel Oil Fuel Oil
Waste
990
268
187
31
164
88
2,218
1,968
6
3
606
584
10
3,981
2,883
6
164
88
Sources: EIA Form 816 via Ventyx, 2014 NERC Report on Polar Vortex
New England was able to utilize its dual-fuel peaking units to cover low LNG
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Summary of Analyses
Study #2: Peaking solutions (dual-fuel and LNG) are least cost
Assumed ~ $83/barrel
Current prices:
~ $7/mmBtu
Sources: Energyzt analysis of average cost of incremental supply (variable and capital costs) and does not include price suppression due to
excess natural gas supply into the market. Assumptions reflect current market conditions during winter peak periods
Key assumptions:
Pipeline cost = $2.4 billion
Cost Recovery Factor = 12.5%
Variable Costs = $5 / mmBtu gas supplies and $1 / mmBtu other
Cost of Fuel Oil = $15 / mmBtu = $83 / barrel
Cost of LNG = $10 / mmBtu
In addition, dual-fuel and LNG impose less risk on electric ratepayers
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Conclusions
New England needs contracts, not construction
 Winter price spikes reflected a transient peaking problem
 Existing infrastructure is more than adequate
 The market is responding by accessing existing infrastructure
– Dual-fuel capability
– LNG contracts
– Energy efficiency
– ISO-NE performance programs
Such peaking solutions are the least cost and least risk to ratepayers
 New pipeline capacity already is being built under traditional
financing mechanisms which will expand capacity
 A new natural gas pipeline funded by electricity ratepayers is not
needed or justified
The issue is not lack of infrastructure, but inadequate use of that infrastructure
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Conclusions
LNG provides a number of benefits to New England
 Long-standing history of reliable delivery
 Diversification
– Alternative to domestic sources of natural gas
– Effectively a “pipeline from the east” versus those from west or north
– System benefits in the form of pressurization
 Flexibility
– Product: Baseload or winter peaking deliveries
– Term: Long or short period of time
– Pricing: Fixed or variable (e.g., indexed to global oil or natural gas)
 Lower commitment required by electricity ratepayers
 More consistent with current policies supporting renewables and
energy efficiency
LNG offers New England value propositions beyond simple economics
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Tanya Bodell
[email protected]
Phone: +1-617-416-0651
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