(Bloomberg) -- Thanks to the shale revolution, the U.S. has plenty of natural gas of its own. All along the eastern seaboard, a chain of import terminals -- built when the country expected to get its fuel from abroad -- now lie idle.
For reasons that have to do with environmental politics and geology, New England is bucking the trend. Three or four times a month, a police helicopter escorts giant ships through Boston Harbor, as they deliver liquefied natural gas from Trinidad to a terminal on the Mystic River.
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Why buy from the Caribbean, when so much cheap gas is pumped out of Pennsylvania and Ohio? One objection is the new pipelines needed to bring it to New England. The Northeast is famously cold in winter, and it sits on beds of granite that make underground fuel storage a problem, so gas and power prices typically spike way above the rest of the country when there’s a freeze. But using shale gas to cut the bills means a longer-term commitment to fossil fuels, and any proposed pipeline route triggers local objections: it will leave a scar along the Catskill Mountains, or pose a safety risk to residential neighborhoods. That’s the dilemma that has given Engie SA’s import facility near Boston, unlike all its peers, a new lease on life.
“We’ve been competing with pipelines since we opened,” Carol Churchill, a spokeswoman for the French utility in Massachusetts, said by phone. Once the gas arrives in Boston, some of it goes straight to an adjacent Exelon Corp. power station and the rest is transported via existing pipes or by truck. “It doesn’t make sense to build a pipeline to satisfy demand for 30 to 40 days a year,” Churchill says.
That argument has seen off a few potential rivals. Kinder Morgan Inc. scrapped its proposed $3.3 billion Northeast Energy Direct project in April, after failing to sign up enough customers. The Constitution Pipeline, intended to bring Marcellus gas from Pennsylvania, has been held up because New York denied a water permit, amid concern about contamination of the city’s supply.
Solution or Stopgap?
Instead, New England relies on tankers like the BW GDF Suez Everett, a regular visitor, whose logbook reflects the surge in Yankee demand. It used to roam the world’s seas, putting in at places like Singapore, Nigeria and Yemen; this year, it’s been plying a straight shuttle between Trinidad, where it loads up with LNG, and Boston.
Engie’s terminal there looked like it was sliding into disuse a couple of years ago, but now it’s taking in more cargoes than at any time since 2012. It supplied 11 percent of New England’s gas in January, according to Energy Department and Bloomberg data.
To pipeline-builders, that’s a stopgap not a solution. They point out that New England, like other parts of the U.S., has a growing appetite for natural gas in homes and power plants, as dirtier fossil fuels like coal and oil are phased out. Gas-fired plants are providing more than half of the Northeast’s power supply this month, up from 15 percent in 2000.
Spectra Energy Corp., based in Houston, is months away from completing an expansion of existing pipes in the northeastern region that’s still drawing protests: Former Vice President Al Gore’s daughter Karenna was among 23 people arrested at a digging site last month. And Spectra has a more ambitious project lined up. Access Northeast would bring 925 million cubic feet of Pennsylvanian gas a day -- enough to generate as much power as five nuclear reactors. It could save New Englanders $2.5 billion a year on electricity and gas bills, the company says.
Richard Kruse, Spectra’s vice president of regulatory affairs, acknowledges that there’s now a “coordinated nationwide effort in opposition to natural gas.” But he says there’s no way around the need for new pipelines in the Northeast: Even if the region opts to remain dependent on the more expensive fuel carried in by the tankers, it still has to be distributed.
“If people want to rely on LNG imports and you want reliability, you are going to have to make additional investments to deliver that gas,” Kruse said. “The market has grown and that market needs gas in the winter.”
It’s during New England winters that the argument becomes acute. When the polar vortex plunged half the country into an Arctic chill in 2014, prices everywhere surged -- but nowhere as much as the Northeast. That January, spot gas in New England reached a record of almost $80 per million British thermal units, or 15 times the price of Marcellus gas at the same time. Even in a normal winter, the region pays extra. Gas for delivery next January via Spectra’s New England network currently costs about $8.50 per million Btu, compared with $3.17 for Pennsylvanian shale gas.
“The population up there has to pay exorbitant power bills, and the number one reason for that is that local gas, indigenous to the U.S., 300 miles away, the cheapest in the world, can’t get up there,” said Robert Christensen, an analyst with Drexel Hamilton LLC in New York. “It’s sinful.”
Environmentalists say pipelines are expensive too, though that’s usually not the main objection. Building more of them “would lock us into decades of infrastructure for fossil fuels and crowd out the opportunity for clean energy,” said Kelly Martin, deputy director of the Sierra Club’s Beyond Dirty Fuels campaign.
Alternative power sources like wind and solar energy are getting cheaper, so energy companies should make do with the existing pipelines as the country transitions, Martin says. She acknowledges that the system needs to be able to cope with surges in demand, but says that’s best handled by investing in more efficient energy use -- installing new light bulbs or home appliances that use less power -- and what the industry calls “demand response”: offering customers incentives to cut their consumption at times when the grid is under the most strain.
Industry analysts say it’s risky to leave small margins at crunch times. Pipelines provide one kind of insurance policy, ensuring there’s always spare capacity. There are other ways to avoid shortages. The past two winters, the New England grid has been offering generators incentives to stockpile LNG.
So long as the debate rages, there’s likely to be a role for Engie’s Boston terminal and its tanker-loads of Trinidadian gas. They’re no cleaner to burn than the shale alternative, and certainly not cheaper. But they do offer a way to boost supplies at times of maximum demand -- like icy New England winters -- without making new long-term commitments to fossil fuels.
“We bring LNG to satisfy that peaking need,” Engie’s Churchill said. “It’s worked since 1971.”
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