by Michael Bielawski Vermont Watchdog Natural gas prices are hitting an all-time low and it’s changing the dynamic of the New England energy markets. It also may be highlighting some infrastructure shortcomings for Vermont. “Natural gas is really inexpensive in the New England region (and) it is producing about half of the energy needs in the entire region,” Patricia Richards, general manager of Washington Electric Co-op, told Vermont Watchdog.
“Basically, the natural gas plants set the wholesale market price,” she said.
Natural gas prices in years past have been averaging around $6 to $8 per million British thermal units. Today prices are in the $2 range, mostly due to newly discovered shale reserves and more effective methods of getting natural gas out of the ground.
Still, Vermont has no direct pipeline connection to the US gas infrastructure. This means the state's only access to abundant natural gas is to purchase wholesale electricity from the regional grid.
Matt Cota, director of the Vermont Fuel Dealers Association, said all of Vermont’s natural gas use comes from 2,000 miles away, from Alberta, Canada.
The line used by Vermont Gas comes down from Gaz Metro in Quebec. Vermont Gas serves Franklin and Chittenden Counties and is completing a pipeline to reach Middlebury and Addison County. The Gaz Metro line also services NG Advantage. NG Advantage trucks compressed natural gas to industrial customers in Vermont, upstate New York and New Hampshire from its Milton depot.
“Whenever you see the market move in the US, you almost have to carve out Vermont and put it on an island because we are not attached to that market at all,” he said.
Cota said that natural gas is in such abundance right now that it is now a major U.S. export, as it is liquefied, put onto carriers and sent around the world.
However, New England's pipeline infrastructure is lacking in capacity. During cold winter months and peak demand, the pipelines get bottlenecked, which contributes to price spikes.
“That’s when everyone is using natural gas to heat their houses and businesses,” Richards said. “You set up a competition between power plants and the heating use, and there’s just not enough pipeline capacity to move the gas around in New England.”
Around 40,000 Vermont homes, or 6 percent, use natural gas. This is relatively low compared to states like Connecticut and New Jersey, where more than half of the populations rely on natural gas for heating.
By contrast, Cota said heating oil is a big deal for Vermont, with over 55 percent of homes using the fuel. And those prices are lower than natural gas in some cases. Last year, heating oil dropped 30 percent; this year it dropped an additional 5 percent.
“So few people use natural gas in Vermont,” said Cota. “It’s just not a very practical fuel for a rural area.”
Richards said another problem of the last few years is that ISO New England, the regional grid operating service, has set up winter reliability plans that utilities pay into. These plans pre-pay oil burning power plants to stay online and be ready to fire-up on demand if there is a capacity overload.
“Those are many millions of dollars for the whole region and we get assessed a portion of that, and they aren't insignificant costs,” Richards said. “In fact, (for) our last rate increase we saw a significant portion of those costs specifically because of these winter reliability price hits.”
Both Richards and Cota said pipelines come with a cost.
“You’ve got to dig up the ground, you’ve got to put brand new pipeline in, and someone’s got to pay for it,” Richards said. “The power plants don’t want to pay for it, the owners of the gas don’t want to pay for it, so there’s not an appetite to spend billions of dollars to do some of these upgrades.”
Cota points out the 41-mile pipeline between Burlington and Middlebury alone cost $150 million. “That’s astounding, and I think at the end of the day they are never going to be able to pick up enough customers to be able to make that pencil out. It would be another 60 or 70 miles to connect to the U.S. system in Albany, New York.”
Richards said if this keeps happening year after year, then there may finally be enough pressure to trigger a pipeline project.
“At some point, yes,” she said. “At some point there will be enough, whether its political pressure or economic pressure, there will be a response.”
Cota is less optimistic.
“For the foreseeable future, Vermont will not be connected to the US pipeline infrastructure,” he said.
Vermont Watchdog / November 30, 2016