Transportation could become a bottleneck in the future as demand for natural gas increases, and the approval process for pipelines becomes more difficult, the Federal Energy Regulatory Commission warns in a new report.
More natural gas pipeline capacity will be needed in the next 5-10 years to transport natural gas to fuel new electric generating plants and to serve new markets, FERC says.
The US natural gas transportation system will need to add capacity to serve market demand that will rise to 25 tcf of gas in 2005 and an estimated 30 tcf in 2010. In order for enough capacity to be on hand, FERC says it must speed up the siting process.
Over the next 5 years, the commission will be implementing orders that encourage regional grid integration of both the electric and gas markets, with fewer economic or operational impediments to trade, it says.
"This should result in fewer opportunities for discrimination in transmission service, higher levels of transparency, and greater ease of entry or exit for commodity source options," says FERC.
But the agency is predicting that even as the need is growing, the pipeline application process will become "more contentious" and complex, heightened by public awareness and related safety concerns and unpredictability in the marketplace.
The nature of the market is changing affecting the location of pipelines. As competitive energy markets evolve, natural gas supply and consumption may shift geographic location. New suppliers will appear as new natural gas development becomes economic, including such projects as the Alaska pipeline.
Demand will increase as new market penetration occurs in such areas as New England, FERC says. But external factors such as fluctuating natural gas prices and creation of a heating oil reserve for the Northeast add to the complexity of potential supply and demand changes, it says.
Nonetheless, FERC says it expected to issue pipeline certificates of necessity "expeditiously" when the applicant shows the public benefits outweigh any detrimental effect on existing customers, landowners, and competitors and their customers.
Less eminent domain
With rules requiring earlier landowner notification, the agency says it expects the industry to exercise eminent domain less frequently. Giving landowners more advance notice of proposed routes will give them a chance to participate in FERC proceedings and cut project delays caused when landowners become aware of projects late in the process.
The agency is also shifting toward greater market flexibility in granting pipeline certificates. No longer will it rely primarily on precedent-setting agreements and contracts in considering other evidence of market need, it says.
In future, the commission will show "greater deference" to incremental rates instead of rolled-in rates in determining the need for pipeline additions and expansions.
"Incremental rates send the proper price signal for the market to decide if expanded pipeline capacity is financially viable," according to the report. Under Order 637 pipeline owners have increased opportunity to structure more flexible pricing and terms with shippers. It removed short-term price caps, allowed peak and off-peak rates, and revised transaction procedures.
With respect to the electricity markets, FERC says it will work to constrain market power through creation of regional transmission organizations that will promote competition. The agency says it will also monitor the markets for instances of affiliate abuse and will use "its regulatory authority to implement remedies when market power problems arise."