November 5th, 2014

New England Electricity Prices Spike As Gas Pipelines Lag | New Hampshire Public Radio

Some electricity customers in New Hampshire are in for a shock this winter. Numerous utilities across New England have announced electricity rates that are some of the highest in the history of the continental United States. And it’s a problem that’s expected to get worse before it gets better.

For some consumers, this is more real than for others. Don Sage and his wife make due on a bit less than $30,000 a year in social security payments. So he can ill-afford to pay another $40 a month on his electric bills.

“When the invoice comes in the mail to get paid, I have a target amount that we can fluctuate up or down, based on our fixed budget,” says Sage.

Utility rates, and the energy market in general are pretty inscrutable to most energy customers, but in reality, these retail rate-hikes have been a long time coming.

Hard To Bottle

To understand what’s going on here, you need to know that in the last dozen years New England went from getting 15 percent of its energy from natural gas to almost half.

There are a couple of problems with that.

For one, compared to other fuel sources, it’s really hard to store natural gas. You can get a sense of this at Distrigas, New England’s only Liquefied Natural Gas Import terminal, just north of Boston.

Distrigas has two massive tanks, which when full, contain enough gas to fuel all of New England’s for about one winter day.

“These tanks themselves are a tank within a tank, they’re like big thermos bottles.” Says Tony Scaraggi, Vice President of operations at Distrigas.

Natural gas as a liquid takes up 600 times less space than as a gas, so that’s how it’s typically stored. But its chemical properties mean it has to be really cold before it becomes a liquid.

In some places, space isn’t a problem, because natural gas is stored in massive underground caverns. New England’s geology doesn’t have any of those, so we’re stuck super-cooling it, and keep it in big expensive thermoses.

Compare that to coal, which you can keep in a big pile.

“Just-In-Time” Delivery

All of the hassle and expense means most natural gas power plants don’t have storage tanks; instead they tap into the region’s pipelines.

The problem with that? On the coldest days, there just isn’t enough space in the pipelines to go around. So when the temperatures drop, demand rises and electric plants bid up the prices: we’re talking easily five times higher on certain cold days.

“In New England, this winter, based on what’s been recently trading, is likely to have the highest natural gas prices on planet earth,” Taff Tschamler, chief operating officer of energy supplier North American Power, told an energy conference this fall. That’s traders hedging against another winter as cold as last year.

According to Competitive Energy Services, a private energy consulting firm, Gas for January delivery is trading at nearly $19 per million BTUs. In Japan, which relies entirely on imported gas and often has the world's highest prices, gas is forecast to cost less than $18 this winter.

There’s no doubt that New England gas demand has outstripped pipeline supply, and the market is responding. Two small pipeline expansions, which together would increase regional capacity by about 10 percent, should come online by late 2016. And two much bigger competing projects have been proposed for 2018, which together would come close to doubling the pipeline capacity in New England.