Shrinking natural gas reserves complicate Maine’s efforts to expand service in state

Posted April 28, 2014, at 4:58 p.m.
Last modified April 29, 2014, at 7:54 a.m.

PORTLAND, Maine — Natural gas reserves in the U.S. are at an 11-year low, which has national energy analysts concerned and sets a backdrop in Maine for a series of precedent-setting decisions about expanding pipeline capacity for the fuel used to generate heat and electricity.

Patrick Woodcock, director of the governor’s energy office, said in a phone interview Monday that low reserves reported by the U.S. Energy Information Administration in March could add to challenges in New England, where electricity production is largely dependent on natural gas as a resource that can quickly be called upon to meet spikes in demand.

“With reserves as low as they are, it could exacerbate an already difficult situation next winter,” Woodcock said. “And unfortunately, it’s two separate challenges: where reserves have been depleted and our underlying issue in New England.”

Energy Information Administration projections found that natural gas inventories were down 878 billion cubic feet in March from one year ago, to 822 billion cubic feet. That’s about 755 billion cubic feet short of the normal range for natural gas reserves, a shortfall attributed to an abnormally cold winter that continued to drive demand for heating fuel through late March.

Reuters reported that some analysts are concerned that low prices for natural gas futures will keep suppliers from replenishing reserves before October, though the Energy Information Administration estimates that working inventories will reach close to 3.5 trillion cubic feet by October, on par with 2008 reserve levels.

The early outlook on national natural gas reserves comes as policymakers in New England and Maine are grappling with questions about expanding capacity here. Last month, the Maine Public Utilities Commission opened a docket to consider how the state should use its new power to acquire natural gas pipelines on behalf of customers, in order to reduce electricity costs.

The fuel has an impact on electricity prices because it is used to generate power. It is considered a reliable source because natural gas-fired power plants can be turned on relatively quickly. A study commissioned from the Massachusetts-based Sussex Economic Advisors, as part of the PUC case, found that power generation made up 43 percent of the demand for natural gas in New England in 2012 and 2013.

The state law, passed as an omnibus energy bill, included a provision allowing the state to add up to $75 million annually to electrical rates to subsidize interstate gas pipelines to the region, a question with which PUC Commissioner David Littell said that the commission “has no legal, technical or economic experience.”

“This proceeding is precedential,” Littell said March 20 in a written opinion about opening the docket. “It will examine economic and legal issues never before considered by a state commission; it could involve the largest singular investment by Maine ratepayers authorized in this commission’s 100-year history.”

The law authorizes the state to execute any contracts to expand natural gas capacity before the end of 2018.

In that hearing, the report by Sussex will provide one framework for estimating the costs and benefits of increasing pipeline capacity to the region, which will be used in estimating how increasing pipeline capacity stands to benefit customers.

Looking to the high prices recorded last winter, the Sussex report estimated that pipeline constraints cost Maine consumers about $50 million more from December 2012 to February 2013 than the same period one year prior.

The report found that increasing pipeline capacity is the “principal factor” in closing a gap in price between the Algonquin Citygate port, used as an index for New England natural gas buyers, and the Henry Hub in Louisiana.

That case before the PUC is ongoing. Regionally, the six New England governors have directed grid operator ISO-New England to craft a regional plan for increasing its tariff to support an investment in natural gas pipeline capacity.

Woodcock said discussions in that regional effort are continuing, and he hopes the group will have a proposal before the Federal Energy Regulatory Commission in that matter before the end of this year. The regional plan may also factor into the PUC’s deliberations over the new Maine law this year.

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