Natural gas pipeline infrastructure needs

Platts Energy Week TV carried an important segment on July 13, 2014 discussing the need to make major investments in the US natural gas pipeline infrastructure in order to deliver new sources of gas to growing markets. Chris Newkumet from Platts talked with Don Santa of the Interstate Natural Gas Association of America and Ben Schlesinger, a leading gas industry consultant.

The discussion above highlights several aspects of “cheap natural gas” that rarely get mentioned in the ad-supported media. The first item, the fact that interstate pipelines can be sited on private property with no agreement from the landowner using federal “eminent domain,” is hitting close to home. Last weekend, while traveling on one of my favorite country roads — Virginia State Road 151 (aka Patrick Henry Highway) — in Nelson County, I noticed several yard signs with the universal “No” symbol and the word “Pipeline” written on them.

Dominion Energy is planning a natural gas pipeline from West Virginia through Virginia that will have two branches, one that goes to the Tidewater area near Norfolk, VA and one that goes into North Carolina. Dominion started surveying the route, but local landowners resisted. Dominion has interrupted its survey efforts pending a brief to the County Board of Supervisors at its next meeting on August 12. Experiences reported in other areas indicate that Dominion will make an effort to site the pipeline in the least damaging locations, but the construction will happen even if numerous property owners on the chosen route do not agree.

Though there is a US constitutional provision that prevents taking private property without fair compensation, the amount of money provided to landowners to compensate for burying a pipeline across their property often does not make up for the construction-related headaches and the loss in value caused by the existence of the pipeline.

Here is a quote from the clip above that illustrates the natural gas industry’s point of view regarding pipeline construction siting.

Chris Newkumet: Don, the electric grid is facing similar challenges, but there are some differences both in the commercial and the regulatory model. Some would argue that it’s actually easier to more quickly develop pipeline capacity to feed new demand. Do you agree?

Don Santa: I would agree with that. We’ve got several attributes that are unique compared to the electrical system. First of all, FERC has got the authority to site interstate pipelines under section 7 of the Natural Gas Act. With that comes the right of eminent domain. I think that’s a big advantage. You’ve got an industry that, although it’s regulated, it is still very contract driven. Pipes compete for market opportunities; there’s no central or regional planning. I think that has given us the ability to respond very quickly to these dramatic developments in terms of the shift of the source of supply and the areas of growing demand.

The second important point is that natural gas fired merchant power plants are either unwilling or unable to sign the kind of contract commitments that are required in order to finance and build new natural gas pipeline capacity. Insufficient pipeline capacity leads to large price differentials in places that are just a few hundred miles apart. The participants in the show discussed prices during a recent period in which there was a three dollar per MMBTU difference between the price of natural gas in Pennsylvania and the price in Boston while the prices in New York were within a dollar of the prices in Pennsylvania.

New England is a particularly stretched market, with continuing additions of merchant power plants burning gas without any long term contracts. During a recent effort to offer increased pipeline capacity to New England there was not a single electric generator willing to subscribe for firm natural gas transportation.

Governors in New England, in partial recognition of the potential impact of a loss of electrical power due to inadequate fuel supplies on cold winter days, have developed a thought-provoking possible response to the conundrum. Here is how the interview participants talked about the issue.

Chris Newkumet: There was an announcement by Spectra recently that they are making a major pipeline push into New England, basically playing off of the New England governors planning process. Don, can you talk a little about that?

Don Santa: Yes. The problem we’re talking about mainly goes to the electric power markets, mainly those restructured markets with the ISO/RPO markets where the generators don’t get that price signal to sign up for new pipeline capacity. New England governors, acting through a group called NESCOE have shown great leadership in terms of saying that the region needs the capacity, that there is nothing on the horizon in terms of changes in the electric market that is going to make that happen, and they came through with a proposal that the cost of the new pipeline capacity to serve the generators be made part of the generally applicable electric transmission tariff of ISO New England.

That sounds like the governors are proposing that all electric consumers chip in to supply the funds for the major capital investments required to enable the increasing use of natural gas as a power generation fuel.

There is a presentation posted on the NESCOE web site titled Addressing New England’s Energy Challenges dated June 30, 2014. A word search of the 30 slide brief contains 41 instances of the word “gas,” four instances of the word “renewable,” and zero instances of the word “nuclear.”

After a closer review of the brief, it turns out that it included two images that include the word “nuclear” within the picture. One is a pie chart showing that nuclear provided 25% of the electricity in the region at 6:00 pm during four particularly cold days. The other showed that nuclear was providing about 4,200 MWe from a group of generators with a total nominal capacity of 4,100 MWe at a time when 11,000 MWe of natural gas capacity was providing just 3,000 MWe due to fuel supply constraints and pricing issues.

I hope that the people who received that brief take the time to look a little more closely at the decisions they are making to favor natural gas over other generation sources. Will they turn to Peter Schumlin and ask him to explain the pressure he put on Entergy to close Vermont Yankee? Will they turn to Deval Patrick and ask him to help people on Cape Cod understand the importance of Pilgrim or to Maggie Hassan with the same question about Seabrook?

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