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Why LNG in Maine/New England?
The Potential Role of New LNG Supply in the Northeast Gas Market
LNG can play an important role in meeting the gas supply/demand gap. However, a key consideration for new LNG supply will be the location of the terminal and its ability to economically supply natural gas to the market.
There are limited options for new LNG to be delivered to the New England market from Quebec and New York – the current pipelines are constrained and no major expansions are planned. Only the Maritimes & Northeast (M&NE) pipeline has expansion capacity available, up to 2.2 bcfd from its current capacity of 500 mmcfd. This pipeline connects directly into major gas consuming sub-markets of New England, which include:
- CT, RI and southeastern MA - relatively isolated due to capacity constraints;
- Greater Boston and remainder of MA; and
- Northern New England (Maine, New Hampshire and Vermont).
In order to optimize its supply availability, an LNG terminal should be located in such a way that it can effectively meet demand requirements in all three sub-markets. Recent data has suggested that locating an LNG terminal in southern New England would limit its ability to supply gas to other parts of New England.
New England: Increasing Gas Supply Connections
The Boston Metro area and southern New England are the main demand centers in the region. With the interconnection of the M&NE and Portland Natural Gas Transportation System (PNGTS) pipelines via the Hubline pipeline (near Boston) to the Algonquin system, access to customers in Connecticut and Rhode Island will increase. M&NE can readily expand capacity to serve demand growth.
Increased gas supply from the north to Rhode Island and Connecticut, possibly through planned LNG investments, could relieve congestions on gas flows from TransCanada Gas Pipeline (TGP) and Algonquin, which move mostly from south to north and or west to east. However, in the absence of such new LNG sources, the supply situation becomes more complicated.
Competitiveness of a Maine Based LNG Project
The ability of a Maine based LNG terminal to economically meet gas demand in New England is critical. The Northeast gas market, particularly New England, carries a price premium as compared to other markets in the U.S. due to a lack of local supply, transport cost from gas producing regions of the U.S. and Canada, and limited pipeline capacity.
There are considerable economic advantages for New England consumers if an LNG facility is located in the region, as it will increase supply options and, over the longer run, lower the price of gas. Although there are several proposals to locate LNG facilities in Canada, with the intent to export some of the gas to New England, a Maine based LNG terminal would be a better option in terms of security of supply for U.S. consumers and lower priced gas.
By locating an LNG terminal in Maine, as opposed to Canada, a U.S.-based terminal has an immediate cost savings of $0.20/mcf of gas, given the closer proximity to the market.
Why alternative energy is insufficient
Over the past twenty years, the cost of production of alternative energy, particularly wind-generated electricity, has fallen dramatically. The federal government and many states such as Maine, have introduced incentives to promote renewable energy. These includes tax incentives and the establishment of Renewable Portfolio Standards, a minimum percentage target for renewable electricity generated by a power company or in a state.
However, there are limitations upon the future expansion of renewable energy, including technical issues related to the transmission of power from decentralized energy production (e.g., isolated wind generators) to urban demand centers. In addition, one of the greatest barriers to expanding renewable energy generation continues to be local opposition to wind, small-scale hydro, and biomass.
While there are operating wind power projects in Maine, most notably at Mars Hill, and many others are in the permitting stage, local opponents continue to express concerns about noise and the impact of large turbines on bird life and viewsheds. In Massachusetts, the proposed 420 MW Cape Wind project sited offshore in Nantucket Sound has encountered fierce opposition from boaters and residents due to concern over issues such as visual impact.
Tidal power or wave turbines have not been proven commercially or economically viable for wide-scale application. There are ongoing efforts in Maine to install small-scale wave turbines as demonstration projects and a number of developers have sought and received Preliminary Hydropower Permits for tidal power projects in Maine and New Hampshire. However, commercial applications significant enough to meet Maine’s power needs are many years away.
While greater energy efficiency and the expansion of renewable energy sources are steps in the right direction, these initiatives alone cannot provide a commercially viable alternative to increasing the supply of natural gas in Maine and the New England region.
A recent report by the New England Governors’ Conference (2005) assessed a number of scenarios to meet natural gas demand growth in the New England region. One scenario involved the expansion of electric energy efficiency programs to reduce the demand for electric generation, thereby reducing the potential peak gas demand for electric generating plants. However, increased efficiency in electricity consumption provided only a small improvement in gas supply reserve margins, because electric generation is a modest component of overall peak day gas demand.
Consequently, it is clear that conservation and renewable energy initiatives in the region will not eliminate the need for projects like Downeast LNG. New England still needs the reliable, long-term, and competitively priced source of natural gas that the project can provide.
Two important reports have documented the need for additional LNG supplies in New England. In its report, The Economic Imperative for Additional LNG Supplies in New England (May 2005), the New England Council notes that multiple projections from the federal government and private forecasters indicate that before 2010, demand will equal or exceed the region's ability to supply natural gas.
The report also notes that additional LNG infrastructure in the region will moderate the price volatility of natural gas that has forced businesses and consumers in New England to pay at least $500 million more for electricity every year. The high cost of natural gas is beginning to take a toll on New England's economy -- particularly in the manufacturing sector where natural gas bills have doubled over the last year.
The New England Governors' Conference notes in Meeting New England's Future Natural Gas Demands: Nine Scenarios and Their Impacts (March 2005) that if gas demand continues to grow at a rate equal to or higher than recent growth rates, the region's gas delivery infrastructure would be insufficient to deliver all needed gas after 2010.
Given the lead-time it takes to permit and construct new natural gas infrastructure facilities, actions deferred or undertaken now will significantly influence the region's economic growth for years to come. The time to meet these challenges is now.
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