Taming the polar vortex

Last winter, the so-called Polar Vortex – a large pocket of very cold air – invaded states in the Northeast and Midwest. Persistent, record-breaking cold stressed New England’s energy systems, both natural gas and electric, forcing operators to scramble for extra fuel and power. Although spot gas and electricity prices spiked, service remained reliable thanks to creative management and foresight on the part of the region’s energy industry.

But this balancing act can’t go on indefinitely. While the Northeast and the country as a whole now enjoys all-time highs in natural gas production, which is expected to repeat next year, New England is uniquely impacted by the interplay between delivery capacity, power generation and extreme temperatures. To take advantage of huge domestic natural gas supply – and support market stability and affordable prices – the region needs an expanded pipeline network.

From a national perspective, America is awash in natural gas as the output from shale fields continues to grow. The Marcellus shale formation, which lies near New England in the Appalachian basin, continues to break records and this year, production hit more than 16 bcfd of natural gas for the first time ever. Marcellus alone could provide enough gas to meet all demand in New England (and the Mid-Atlantic as well) from 2016 to 2040, according to the Energy Information Administration (EIA).

Shale gas fields like Marcellus have been developed so quickly that the U.S. pipeline system still has to catch up. Traditionally, pipelines bring gas north to New England from the Gulf Coast; today’s energy landscape calls for more west-to-east connections.

To put a finer point on this, the industry continued to fill storage capacity at record levels during the summer and into the fall and has nearly caught up with the five-year average for this time of year. Match that with recent and projected additional production, and we have more gas ready for winter than we did last year. And the United States is the world’s largest natural gas producer.

“New gas supply is at New England’s doorstep, but moving it in from the West will require investment in pipeline infrastructure,” said Gordon van Welie, ISO-New England’s President and Chief Executive Officer. “Our operating experience this winter revealed that the natural gas infrastructure in New England is even more constrained than we previously understood.” According to the New England Council, a regional business organization, “New England may be the most capacity constrained region in the country from an infrastructure perspective.”

For decades, gas pipelines have served New England well, bringing plenty of supply to meet steady year-round demand. The region’s pipeline capacity is now around 3.5 billion cubic feet per day (bcfd), with most of the gas coming from the Gulf of Mexico and from eastern Canada’s offshore fields. Liquefied natural gas (LNG) is imported to satisfy peak demand, the maximum amount needed on the coldest winter days.

So what’s changed? The obvious trigger was last winter’s Polar Vortex, the extreme cold weather that caused demand for gas-fueled heat to surge. Low temperatures were especially persistent in the Northeast, where 62 days were below freezing, compared to an average of 35 days during the previous five winters, EIA found. Temperatures often dipped into single digits and even fell below zero, while high winds and snowstorms battered the region.

Extraordinary demand for natural gas caused prices on the spot market to spike in New England and New York. At Boston’s market hub, gas prices peaked at more than $75 per million Btu in January 2014. Prices averaged $22.53 per million Btu from January 1 to February 18 – a record high since data collection began in 2001, and 50% higher than the previous winter, according to EIA. In New York City’s spot market, price spikes were less frequent than in Boston’s but more severe, reaching $123 per million Btu. The benchmark futures price traded below $6 per million Btu during the Polar Vortex cold spells.

While the winter’s extreme temperatures ultimately abated, persistent underlying factors continue to impact natural gas prices in the region.

New England’s shifting power mix has put new demands on the region’s natural gas delivery network. Natural gas, because it’s clean and affordable, has become the fuel of choice for the region’s power plant operators. As recently as 2000, oil and coal supplied 40% of New England’s electricity, with gas’s share at only 15%. Now natural gas generates 46% of the region’s power, and this share will grow as more coal- and oil-fired units are shut down and nuclear plants are retired. This means that when natural gas prices rise in New England, so do electricity prices – a double whammy for energy consumers.

New England’s  governors have called for gas pipeline capacity expansion to help stabilize regional markets and control the volatility of both natural gas and electric prices.

There have been hopeful developments. In 2014 alone there will be more than $19 billion in investments infrastructure in the U.S. This means that more customers will be able to get access to the natural gas they need. This figure is up from a ten-year annual average of $10 billion in infrastructure. Many of these investments are outside New England, but there are a number of promising projects planned for the region.

As another winter looms, the people who are responsible for keeping New England’s lights on and its homes warm continue to worry. “The problem will only get worse unless the infrastructure issue is addressed,” said van Welie. “We only have to look at the past two winters to understand the precarious position we are in for the next few years.”

The good news is that there is robust supply to meet that demand for many generations to come. The question is will New Englanders heed van Welie’s warnings.

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