Coalition to Lower Energy CostsTony Buxton - The Dupont Group LTD

Coalition to Lower Energy CostsTony Buxton - The Dupont Group LTD

Coalition to Lower Energy Costs Tony Buxton New Hampshire Energy Summit: NH Natural Gas Opportunity Panel October 5, 2015 Who is CLEC? Aggregated voice of New England consumers on energy issues Members include: paper mills, ski resorts, bottle manufacturer/recycler, commercial property

owner, the MA Restaurant Association, aerospace parts manufacturer, labor unions, the Fall River Chamber of Commerce Membership is expanding What Does CLEC Do? Participates in regional proceedings (e.g., MA DPU 15-37, NH PUC IR 15-124, CT Renewables RFP, etc.) Testifies on energy issues Educates members, the public, and decision-makers Advocates for all-of-the above energy (except coal and oil) solutions that will lower prices and emissions:

increased gas pipeline capacity solar wind hydro energy efficiency, conservation, demand response What is Adequate Pipeline

Capacity for New England? Heating Demand Minimum Generation Demand Total Need Capacity Available What Must be Built 1. Pipeline Capacity 2. 8,760 Capabilty NH PUC Staff Report In brief, we view Access Northeast and Northeast Energy Direct (NED) as two very cost-effective projects that will moderate future winter electricity prices though the numbers clearly indicate that NED will provide the greatest benefits to regional

electricity customers. Staff has concluded that the Commission may hold that New Hampshire EDCs have authority to enter into gas capacity contracts for the benefit of gas-fired generators All three of the pipeline-based projects will enhance electric grid reliability by providing gas generators access to firm fuel supplies through the provision of firm transportation and no-notice services. Given that the capacity purchased by EDCs will be paid for by the customers of those companies and not by the shareholders, Staff believes that it is incumbent on regulators to ensure that the needed capacity be allocated among pipeline projects through an open and transparent process that is demonstrably competitive and results in the lowest possible cost to consumers. Because most of the largest EDCs in New England are affiliated with the sponsors of one of the competing

pipeline projects, we believe it will be difficult if not impossible for EDCs to make a convincing case that pipeline open seasons qualify as fair, open and transparent competitive processes. The Riskiness of LNG to New England Consumers 1. The inherent cost of very cold gas 2. What this cost implies for an adequate supply network 3. Review of several proposals 4. The proper role for LNG in the New England energy future

LNG is Not the Solution for Price, Reliability, and Environmental Reasons LNG price is driven by world pricing LNG is inherently more expensive than pipeline gas Added cost/emissions of barge transportation, trucking, liquefaction, storage at very cold temperatures, and regasification LNG is always inherently $4 to 5/MMBtu more expensive Dont be fooled by the landed price Unlike Gas LDCs, offshore LNG facilities have no obligation to serve. They opportunistically withhold LNG until prices are > $20/MMBtu When >$20/MMBtu LNG is the fuel used for the

marginal generator in N.E., that fuel cost sets the market-clearing price for all generators in New England at prices well over $100/MWh Cost-Effective? Heres what ISO-NE says: Expensive alternatives: Some generators can use LNG when the regions pipelines are fully congested. However, LNG tends to be four to five times more expensive than the typical price of gas from the Marcellus Shale because it is currently sourced and priced internationally. Spot LNG supplies are unpredictable and very sensitive to relative pricing. The region benefited from the availability of LNG resources this winter [2014-15], but there is no guarantee that those same shipments will arrive next winter, or that oil prices will remain low. The regions pipeline infrastructure, however, will continue to be constrained .

LNG is a globally-priced commodity and its availability in New England is dependent on worldwide demand. New Englands record-high natural gas and wholesale energy prices during winter 2013/2014, along with high forward prices late last year, provided strong economic signals to LNG suppliers to bring tankers to the region this winter. An October 2014 FERC analysis noted that winter futures prices in New England for both natural gas and power were the highest in the US. In addition, the estimated landing prices for LNG revealed that the New England region was predicted to have the highest prices in the worldand nearly twice as high as prices in Europe, Asia, and South America. However, while increased competition [from LNG] in the gas market helped to dampen prices over the course of the winter, the amount of Marcellus shale gas that could be delivered to the region from the west remained limited by New Englands constrained pipeline system. During many cold days in February, daily spot-market natural gas prices hovered in a range of $20 to $30 per million British thermal units (MMBtu), which is high by historical standards. These higher gas prices increased winter wholesale electricity prices: Februarys [2015] average wholesale energy price was $126.70/MWh, which makes it the third-highest

average monthly wholesale energy price in New England. Reliable? Heres what ISO-NE says: LNG import variability - LNG tankers follow the money around the world each winter. Consequently, the LNG imports that helped increase gas supplies in the region this winterand helped moderate priceswere here because of last winters (2013/2014) high prices. If another part of the world experiences high LNG demand as the global economy recovers, global LNG suppliers may no longer find New England their preferred destination in future winters. Lower LNG supplies in future winters would exacerbate New Englands gas pipeline constraints and infrastructure challenges, and heighten the potential for a return to the high wholesale energy prices experienced in winter 2013/2014. [H]eavy injections of LNG into the eastern portion of New Englands system were helpful because this increased the amount of gas coming into the region, while circumventing the pipelines bringing in gas from

the west, which were already running at full capacity throughout the winter. In February, generation from oil-fired power plants was especially critical in meeting demand for power when the weather turned bitterly cold, and also when LNG deliveries became intermittent when one LNG import terminal ran out of fuel and another terminal was unable to dock and unload cargoes because of poor weather conditions. LNG: Global Factors, Local Effects --Increased use of liquefied natural gas (LNG) in the region is one possible way of alleviating the symptoms of regional pipeline constraints. However, shipments can be limited when international markets offer higher prices. As an added complication, transporting LNG in winter, when the region needs it most, is subject to weather delays. These factors make LNG prices volatile in New England, exceeding global prices on days when LNG facilities cannot keep up with regional demand. [B]oth the Distrigas LNG terminal in Everett, MA, and the Canaport LNG terminal in New Brunswick, Canada, recorded steady throughput this winter, and the Northeast Gateway facility, located

offshore from Gloucester, MA, received its first LNG shipment in four years, in January 2015. CLFs LNG Proposal Use LNG import facilities in conjunction with expanded truck deliveries to refill the satellite LNG facilities to effectively base-load LDC assets Advance contracting of 24 Bcf of LNG in 2020 Advance contracting of 45 Bcf of LNG in 2030 7,200 truckloads of LNG in the heart of winter Spectras LNG Proposal New LNG storage facilities with a combined usable capacity of 6.0 Bcf, which when combined with liquefaction and vaporization equipment will

deliver up to 0.4 Bcf /day of gas on peak winter days. Domestically sourced NG will be placed into storage during off-peak periods at a cost equal to the sum of the price of gas at the receipt point where it is purchased, the variable cost of transportation to the LNG storage facility, the variable cost of liquefaction, and the variable cost of storage. On peak demand days during the winter or during operating reserve deficiencies, the stored LNG would be vaporized and released to generators first and foremost at the daily spot price of natural gas in New England on the day of delivery. In the event of negative margins, the sponsors contend that the Capacity Manager would likely decide not to sell gas and instead hold on to it until such time as either the market price appreciates enough to sell gas at a positive margin or the supply is needed for reliability purposes.

NH Staff says: if the variable costs of LNG turn out to be higher in most hours than the spot price of gas and LNG remains in storage, Access Northeast will be incapable of fulfilling one of its primary design objectives, which is to address the unique requirements of gas generators. The Whims of the Worldwide LNG Market Should New Englands Electricity Prices be Dictated by this ? Or this?

Or this ?

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