As it faces another winter, the Everett Distrigas LNG receiving terminal in Boston harbour will again play a key role in meeting the seasonal surge in energy demand from the six New England states in the northeastern corner of the US.
Yet, as Everett prepares for its peak season, the Northeast Gateway and Neptune LNG import terminals off the Massachusetts coast near Boston sit idle and, in recent weeks, two LNG terminal projects planned for the region ̶ Downeast in Maine and Port Ambrose in Lower New York Bay ̶ have been shelved.
New England’s complex energy supply-demand matrix is further complicated by the fact that regional customers have paid more for their fuel over recent winters than those in other parts of the country. This, despite the fact that increasing volumes of pipeline gas are becoming more available from the rich Marcellus shale gas plays of eastern Pennsylvania, 500km to the south.
The six New England states lie at the ends of the US and Canadian pipeline systems. The capacities of these systems have limits and the region has no natural gas reserves or underground storage caverns.
Opened in 1971, Everett is the longest-serving LNG import terminal in the US and the country’s busiest. It received 14 LNG cargoes in 2014, down on previous years but still topping the list of US LNG import terminals by a wide margin.
LNG imports have helped to meet New England’s fuel needs for more than four decades and Distrigas of Massachusetts, the Engie group company that operates the Everett terminal, says its throughput should now be of even greater interest to customers after global LNG prices halved over the past year.
Yet the possibility of improved pipeline infrastructure and increased flows of low-cost Marcellus shale gas northwards into the region raise questions about the future viability of New England’s LNG imports.
The recent reduction in global price is one advantage LNG offers to the region. A second is the elaborate LNG distribution network established across the six states, including more than 40 LNG peak-shaving storage sites and a fleet of cryogenic road tankers.
The attractions of LNG are evidenced by a series of deals that Distrigas concluded with New England utilities this year that cover annual supply up to 9.5 billion ft3 of gas to heat homes and feed power plants in the region. The volume is equal to 185,000 tonnes, or three shiploads of LNG prior to regasification, and supplements the terminal’s spot cargoes.
The most significant new agreement, with National Grid, is Distrigas’ largest long-term LNG supply contract in more than 25 years. Under the 10-year deal Distrigas will provide the equivalent of two LNG cargoes this year and at least one LNG shipment per year in 2016-2024. This gas will be priced at parity with the low Henry Hub levels pertaining in the US Gulf.
The new cargoes will be delivered to Everett in summer and distributed as breakbulk parcels in cryogenic tank trucks to regional peak-shaving storages.
This arrangement, which uses the four road tanker loading bays at Everett, will store the gas as LNG for times of peak demand, including during winter. Everett typically handles 10,000 LNG road tanker loadings per annum.
The popularity of natural gas to fuel New England’s power stations has grown over the past decade. Natural gas plants now generate more than half of its electricity, up from 15 per cent in 2000.
Regional demand for gas is about 60 per cent greater in winter than in summer. Natural gas shortages were particularly acute during winter 2013-2014, when they spurred dramatic spikes in wholesale electricity prices around the six states.
To offset further spikes, Distrigas stepped up its LNG purchases before winter 2014-2015, importing 415,000 tonnes in anticipation of New England’s notorious cold snaps. This LNG volume did not require additional infrastructure investment or expansion. It also pushed energy prices for many customers more than 20 per cent lower than 12 months earlier.
For much of the past decade Everett LNG imports have met on average 20 per cent of New England’s gas needs. However, co-ordinated use of LNG road tankers and the region’s 40 fully refrigerated, peak-shaving storage tanks has boosted LNG’s contribution to 40 per cent on the coldest winter days.
Many New England energy consumers have high hopes for greater volumes of Marcellus shale gas being piped into the region. Supporters of pipelines believe that a reduced reliance on LNG from overseas sources will improve energy security.
In addition, despite the recent drop in LNG prices, many see domestic pipeline gas as an alternative that is cheaper still.
But additional pipeline gas for New Englanders will come at a cost. Two major pipeline projects have been put forward for bringing more Marcellus shale gas into the region and both entail substantial capital expenditure.
Kinder Morgan has proposed a new US$4 billion link that would connect with an existing hub in Albany, New York and extend across Massachusetts to the Boston metropolitan area.
Another scheme, drawn up by Spectra Energy, Eversource Energy and National Grid, would expand the existing capacities of the region’s two main gas pipeline systems ̶ Algonquin in southern New England and the Maritimes & Northeast network that links Boston with the Canaport LNG import terminal at St John in New Brunswick, Canada. Known as Access Northeast, this project will cost an estimated US$3 billion.
Another restriction compromising increased deliveries of pipeline gas to New England is a US law that requires long-term sales and purchase agreements to cover a significant percentage of the proposed throughput before permitting construction of a major new pipeline system.
The Downeast LNG project, recently put on hold for reassessment, held out hopes for a gas flow steady enough to justify the Access Northeast pipeline expansions.
Put forward almost a decade ago as an LNG-import scheme at Robbinston, Maine near the Canadian border, Downeast was reconfigured by its developers as a bi-directional LNG export-import terminal in 2014.
Providing liquefaction facilities for the site in the new proposal aimed to ensure gas flows sufficient to justify construction of the Access Northeast network. With this pipeline in place, said Downeast LNG, they could have liquefied excess Marcellus gas volumes for export for most of the year and imported LNG during winter when New England’s need for natural gas is greatest.
There is no doubt that, thanks to its shale formations, North America is a gas-rich continent, poised to export significant volumes as LNG to world markets. However, New England should also retain its status as an LNG-import enclave.
Supporters of the LNG option argue that supporters of the Marcellus pipeline options are seeking a solution for a 365-day problem that does not exist as the region has an energy shortage for only 30-40 days a year. Astute planning of LNG deliveries, using existing infrastructure throughout the year, could easily bridge any supply gaps.