A Natural Gas Price Spike in the early 90s?
Posted on 02/24/2014 5:18:11 AM PST by thackney
Which would you rather do: heat your home, or turn on your lights? That's a choice made every day on New England's natural gas pipelines, and the answer is always the same.
Heating homes is given priority.
It's a decision that makes sense given the number of other fuels available to generate electricity — coal, oil, sun, wind, nuclear, are just a few. But it's also a decision that's costing New England more and more each winter, as using natural gas for home heating grows in popularity.
The result is a traffic jam on the natural gas pipelines that puts electric generation, and your ability to turn on the lights, at risk throughout the region.
SHALE BOOM
In the past five years, natural gas has become an increasingly popular fuel for both heat and electricity generation. That's thanks to a relatively new practice called hydraulic fracturing — or fracking.
With fracking, high-pressured water shatters shale and provides drillers access to natural gas that was previously unreachable.
The now-widespread practice makes natural gas one of the cheapest fuels for generating electricity.
Birud Jhaveri, director of energy markets at the Department of Energy Resources, explains that before fracking was developed, prices for oil and gas "trended equally" although gas was cheaper overall.
"If oil went up, natural gas was related to that and it went up too," he said.
The two fossil fuels' fates were so tied that a reliable way to predict gas prices for electricity generation was simply to look at the oil prices, as both were imported from other countries, Jhaveri said.
After 2010, though, Jhaveri said, the prices "decoupled," thanks to fracking.
"Oil prices continued to rise and gas prices just plummeted," he said.
ISO-New England, which runs the region's wholesale energy market, is responsible for making sure supply keeps up with demand in the cheapest possible way. So every day the organization predicts how much energy is needed, sifts through offers submitted by generators, and calls on the lowest bids first.
When prices for natural gas dropped, generators using the fuel could bid into the market cheaper, meaning natural gas was used more and more.
In 2000, only 15 percent of New England's energy was produced using natural gas, while 18 percent was produced with coal and 22 percent was produced with oil, according to ISO-NE. In 2012 a whopping 52 percent of New England's energy was produced using natural gas, while 3 percent was produced with coal and less than 1 percent was produced with oil.
Such a shift is often heralded as good news not just from the financial perspective, but also because natural gas—while still a fossil fuel — emits about half the carbon dioxide as coal, making it better for the environment.
Wholesale prices for electricity have also dropped. For example, in October 2012, wholesale electricity prices were at $34.65 per megawatt hour, an average of 12.6 percent lower than they had been in October 2011, largely thanks to fracking, according to ISO-NE.
Natural gas' low prices have not only shifted where our electricity comes from, but also where our heat comes from.
For NStar customers, the price for heating with natural gas is $1.63 per gallon, compared to an average of about $4 per gallon of oil, according to spokesman Michael Durand.
The result is that since 2011 the utility has seen more than 2,000 customers per year convert their home heating systems from oil to natural gas; 2012 was the most active year, with 2,500 customers converting. By contrast, before 2011 an average of just 700 customers switched to natural gas per year.
CHILLING EFFECT
But what's cheaper during most of the year comes at a price during the winter, especially this year when cold spells have lasted weeks.
Though electricity demand peaks in the summer months thanks to air conditioning units, the system has become strained the past two winters because of the dual demand for natural gas.
"It's a very significant issue," Tom Kiley, CEO of the Northeast Gas Association. "There is an obligation to serve home-heating customers but on the coldest days we simply do not have the pipeline capacity to do that and send it to generators."
While during the rest of the year natural gas is being used to cover roughly half of New England's energy demand, in the winter more expensive fossil fuels cover the difference.
So on July 19, 2013 — the summer day with the highest demand — natural gas was being used to cover 52 percent of electricity generation needs. On Dec. 17, 2013 — the peak demand day for this winter — natural gas was covering only 38 percent of demand.
Such a shift in what fuels are used can cause problems in extreme weather changes.
At the end of January 2013, for example, temperatures fell to the single digits. Suddenly, demands on the natural gas pipelines for heating meant the price of gas rose above that of oil for electricity generation.
That meant ISO-NE was suddenly calling on oil and coal plants that were not expecting it and that had not stockpiled enough fuel.
"The natural gas prices went up and there were pipeline constraints, and we ran into issues with generators not having the fuel they needed to run when we needed them running," said ISO-NE spokeswoman Lacey Ryan. "We were relying heavily on those plants and saw several generators go low on their oil inventory, others ran out."
To prepare for this year's winter, ISO-NE began a "winter reliability program" to check on how much fuel generators had before they were called on to provide power.
Ryan said the program has worked so far without any major problems.
Still, this winter NStar customers are seeing increases in their electric bills. Utilities chose their electricity generators based on a competitive bidding process that takes place twice per year. Though NStar's Durand said he could not disclose exactly how generators determine with their bids, he did say that "If generators are paying more for gas they use to produce electricity, they are charging more for electricity."
In January, that meant that the average residential NStar customer saw his or her bill increase by 10 percent— about $9.14 per month for customers using 500 kilowatt hours of energy.
COAL PROBLEMS
Energy officials are also getting worried about what will happen come winter 2017, when nine of New England's 32 gigawatts of electricity generation come offline.
Those plants, representing more than 25 percent of the region's generating capacity, include coal plants in Salem and Somerset, as well as a nuclear plant in Vermont.
ISO-NE is already estimating that the system will not be able to meet peak-demand in 2017 and will in fact fall short by 155 megawatts.
As far as megawatts go, that's not a lot. Brayton Point Coal Plant in Somerset, for example has a 1,150 megawatt capacity. But the capacity shortfall will cost New England utilities and retail suppliers almost $2 billion more in capacity payments than in 2013, according to ISO-NE. This all trickles down to the ratepayer, too.
In 2017, the capacity problem is estimated to collectively cost Massachusetts ratepayers nearly $1 billion extra unless a solution is found, according to the state's Department of Energy Resources.
To help stem the tide, Massachusetts is hoping to keep the Salem plant generating energy in the future — by converting it to being powered not by coal but by natural gas. A similar idea has come up in talks about the future of Somerset's Brayton Point Coal Plant, but nothing has been decided, Massachusetts Assistant Secretary for Energy Steven Clarke said.
Converting the plants to natural gas might help with energy generation in the summer, but in the winter could only exacerbate the current pipeline traffic jam.
SOLUTION
In January, the six New England governors sent a letter to ISO-NE with a plan to diversify the region's energy infrastructure.
The plan has two parts, the first of which is to create more pipeline for natural gas with public funding.
"We want more people to switch to natural gas, and we want to be using natural gas for electricity," Clarke said. "We want to gain access to affordable, cleaner energy. That's where the pipeline comes in."
The pipeline, which will expand capacity by six billion cubic feet, is just part of the picture.
The states also intend to invest in renewable energy — including offshore wind projects like CapeWind — to help ease dependence on natural gas as a whole.
"This whole initiative is a package deal," Clarke said. "From the Massachusetts perspective, it is not possible to proceed with the gas expansion and not do the clean energy part."
But environmentalists say they are concerned that the plan to build more natural gas pipeline might actually get in the way of plans to develop alternative energy.
Curtis Fisher, Northeast regional director for the National Wildlife Federation, said he is worried that the low price of natural gas now is lulling the region into making large investments that will commit New England to the fuel no matter how high prices go.
"If you think about our fuel infrastructure now, the coal and oil plants we are still using were built 50 years ago," he said. "We don't know what natural gas prices will look like 50 years from now, but given where they are now, they will most likely only go up."
Prices could rise, he said, if the shale reserves either dry up or begin being exported to an international market.
In contrast, Fisher noted, the cost of renewable energy development is only up front because the fuel generating electricity, like wind or solar, is free and cannot be depleted.
OFFSHORE WIND
CapeWind Spokesman Mark Rodgers said that's one aspect of offshore wind that many overlook when they think about the high cost of deploying an offshore wind farm.
He said CapeWind has done studies showing that offshore wind speeds peak with electricity demand, making the project even more important.
"In the summer you have the sea breeze that begins in the afternoon, when people are turning on their air conditioners, and in the winter you always have the wind chill effect," he said.
In fact, after a particularly bad three-day cold snap in 2004 that strained electric generators, the Massachusetts Department of Energy Resources conducted a study of how CapeWind would have helped the system.
Using meteorological data from Nantucket Sound, the study found that Cape Wind could have supplied 25,596 megawatt hours of energy during those three days. According to the study, had that energy come from CapeWind and not natural gas at the time, 184.25 million standard cubic feet of gas would have been saved — enough to heat 1,600 homes for a year.
"Offshore wind would lessen some of the pressure on the pipeline that we have and would make a more secure electric grid," Rodgers said.
"Offshore wind can really provide utility-scale clean power to the East Coast at times when it is needed more."
No no and hell no. Fracing is not relatively new. It’s been around since 1947. Almost 67 years. I have worked on more then one frac
The article talks like this is a huge problem.
Actually, this is progress on a large scale in a backwater place in America.
New England was my home for 6 years 30 years ago. Back then, there was almost total dependence there and in NY upon heating oil. Natural gas pipelines were not allowed(they were trying to bring in the Iroquois p/l back then) due to NIMBY).
Coal was rarely used due to its particle discharge so utilities like ConEd barged in oil to burn for power generation.
To alleviate demands, two nuclear power plants, one on Long Island and one near Boston, had been constructed at costs of $3.5bn and +$5bn but were not allowed to start due to environmental lawsuits.
The only way to heat was to use heating oil. This caused the entire area to suffer from the whims of oil pricing. It is recalled that every year Congress would pass huge subsidies specific to these states to offset the cost of hearing oil.
Now with natural gas, there is cheaper energy and mixed supply. No longer are the subsidies needed. And people are getting high-paying jobs in Pennsylvania to extract and transport this gas.
Also, we have freed up oil to be used in transportation and lubes/plastics sector.
This is all good, for New England and America.
That's strange. I have read that the opposite is true.
It’s only liberals that create this problem.
Years ago, I worked for a small company in Western New York. After the energy bill got too big, they simply went to the parking lot, put in a gas well for about $10K, hooked themselves up and never paid for gas again. In fact, the gas company pays them for any excess that they put into the pipeline.
The Great Lakes Area is lousy with natural gas, why it isn’t being utilized is the fault of the liberals who block every energy production venture there is, with the exception of bird killing windmills, and bird frying solar panel farms that cost more in the long run than they are worth. They only work with subsidies.
This article is a fine example of how New England style cram downs are done.
1. Induce a capacity constraint through regulation.
2. Cause pain to one and all through invented “problems”.
3. Create roadblocks to any solution until the chosen solution is the one desired (in this case the wind project).
4. Implement over a 10 year time span using tax payers money.
Lather, rinse, repeat.
It will only be good until the price of natural gas skyrockets. We’re ignoring the price spike in the early pert of the 90’s and the reason that happened. We’ll see the same thing in the future.
A Natural Gas Price Spike in the early 90s?
In contrast, Fisher noted, the cost of renewable energy development is only up front because the fuel generating electricity, like wind or solar, is free and cannot be depleted.
Wind powered generators need lots and lots of maintenance to maintain even good operating efficiencies. That gets to be very expensive in the long term.
Solar cells are great when the sun shines. Not being in new England for a long time now I wonder how many solar productive days they’ve had for this winter and over a ten year average.
Lastly reliance on just one or two types of ‘fuel’ for producing electricity makes for easy bottlenecks in the transport of those fuels to the electrical producing stations.
My solution for these people? Diversify your means of producing electricity even more and take care to have the means of producing your own heat and electricity in case the power grid has ‘problems’.
Also it’s a lot easier to freeze to death in New England than it is to ‘bake’ and have massive heat stroke deaths in the population at large.
The Greens in Vermont wanted Vermont Yankee closed. Now they get to pay for it.
And yet they do everything in their power to make it hard to obtain it......the idiocy of the Northeastern liberal is astounding!!!
Any idea how to get older data for electrical utility consumption?
http://www.eia.gov/dnav/ng/hist/n3045us2a.htm
Some older data in this presentation.
http://www.eia.gov/pressroom/presentations/sieminski_06052013.pdf
Heating with oil and propane is still the most common method outside the cities. We have a natural gas line here in Nashua, NH and north through Manchester and up to Concord. There is also a line that runs from Canada down through Maine right along the Atlantic coast. However, everyone else has the choice between heating oil and propane. Therefore, most people have some other kind of supplemental heat source for their home. Wood stoves and pellet stoves are the most popular.
In the last few years some companies have come out with wood pellet furnaces. These are fed by a hopper that is installed outside of your home. Therefore, you need a delivery company that can blow the pellets through a pipe to the location of the hopper.
Lastly, the least expensive fuel(unless you have free wood like me)is anthracite coal. Coal has become a dirty word and companies promoting it do not call it that anymore. None of these heating system alternatives are cheap to install. They can run from $2000(for a cheap stove) or $15K for the pellet furnace/hopper system. There have been state and federal tax credits available to help subsidize the cost. There is even a town in northern NH trying to get hundreds of people to switch to support the local pellet mill in their town. They are offering specific tax incentives to help subsidize the pellet furnace installation.
Wood pellet heat is much more common in Europe than it is in the US. There are many electric generation plants in EU using bulk wood pellets to fire their plants. There are several wood pellet plants planned for construction along the eastern US coast just to supply pellets to be shipped to Europe. Europe has mandated that their CO2 production must decrease. Therefore, coal consumption is going to go down. They will switch the electric generation fuel to either natural gas(from Russia or the ME)or wood pellets from North America.
I agree with your observations.
In my 50 years of living in Connecticut and Massachusetts, constant protests (even door to door in rural areas) were active against nuclear power, although it was the cleanest of all.
The huge majority of homes in the New England countryside use home heating oil (diesel colored differently than that at the pump, so it can be identified for a different tax bracket). Another 5% use wood stoves, but now the EPA is trying to regulate those.
Go figure.
They also do not want the Northern Pass power line from the Quebec through northern NH to go through. That is because Quebec had to flood lands and build dams to generate that hydro power that costs $.00005/KW. Seriously, they will probably end up having to bury a lot of this new proposed line because the people up north do not want it in their backyard/front yard because it will effect their view and property values. Honestly, I can’t blame them. I would not want a high tension power line in my back yard either. Therefore, PSNH(the local electric utility)will have to spend more money burying the line in some sections to get the new right of way through the NH house.
I was just looking at that. The utility industry went on a buying spree when they added natural gas fired capacity starting in the early nineties due to a need for more reserve capacity. Enron was rumored to have contracted for 200 units from GE before they went bankrupt.
From the graphs it looks like even though the utilities increased their generation capacity to a current 30% from natural gas today, they’ve taken advantage of using the plants as on demand sources.
Thanks for pointing out my error! What happens when the utilities replace the coal fired base load power plants with natural gas to maintain capacity in the face of EPA mandated coal plant shutdowns?
In the past coal was still there to allow the natural gas fired units to be used on a discretionary basis/only as needed.
IOW are the utilities moving to a point where they will be forced to rely more heavily on natural gas? The question then is what will happen to pricing?
There was a much older price spike (late 70s?) when the oil price controls ended and the oil embargo time. What was essentially a subsidy towards oil fired electrical generation went away and there was a big push to move more to natural gas.
But that price spike was a better sign of why government interference, either for or against any select energy source, is always a bad idea.
This also provides some info of older data:
http://www.eia.gov/totalenergy/data/annual/showtext.cfm?t=ptb0802a
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.