Sam Fletcher
OGJ Online
HOUSTON, Oct. 3 -- A continued ban blocking liquefied natural gas (LNG) tankers from Boston harbor will drive up regional prices for both natural gas and electric power this winter, an energy analyst said Wednesday.
US Coast Guard officials last week banned LNG imports through the Boston harbor as a safety measure in the wake of the Sept. 11 terrorist attacks in New York City and Washington, DC. Distrigas of Massachusetts LLC, which owns and operates a terminal at Everett, Mass., very close to Boston, has cancelled future shipments until the ban is lifted (OGJ Online, Oct. 3, 2001).
But it's too soon to tell what long-term effect that ban might have on industry efforts to increase LNG imports into the US, said Mary Menino, manager of the natural gas practice at Energy Security Analysis Inc. in Wakefield, Mass.
LNG imports through the Distrigas terminal are a key component in meeting New England's peak winter demand for natural gas, said Menino.
That terminal and its area network of LNG storage facilities serve "as a peaking plant, providing additional supply to the Boston area at times of peak demand, primarily winter, when interstate transmission lines are at capacity and unable to satisfy demand," she said.
Distrigas imports of LNG usually supply 15%-20% of the total annual demand for natural gas for all of New England, said company officials.
During winter months, a LNG tanker usually docks every 10 days at the Everett terminal, which has direct connections into three pipeline systems delivering gas throughout the Northeast, including the Tennessee Gas Pipeline, one of the largest interstate pipelines extending from Texas to New Hampshire.
The company said it also uses imported LNG to fill a regional network of storage tanks that allows it to meet 35% of New England's peak winter demand.
"If we did not make deliveries over the next several months or the year, there would very likely be a shortfall in the gas supply here, particularly in the winter. Prices to consumers could escalate substantially," said Distrigas officials.
Although Boston and other parts of New England also receive natural gas supplies through interstate pipelines, those pipelines do not have the capacity to meet peak winter demand.
"For Boston area consumers, continuation of the harbor ban on LNG tankers could mean higher winter prices," Menino said.
LNG historically has been used to supplement pipeline supplies of gas to meet peak winter heating loads, not to fuel power plants. "However, if LNG supply is unavailable for a prolonged period, gas marketers and distributors will have great difficulty in meeting the heating needs of their core customers, and will likely curtail deliveries to power plants during winter months," said Menino.
If the LNG ban persists -- "and there are indications it will," she said -- the lack of adequate gas supplies is likely to push northeast Massachusetts's power generators to use fuel oil to run their plants. The current price of fuel oil is nearly double that of natural gas.
"This is likely to have a negative impact on power prices. Generators who switch to fuel oil will be pushed out further on the dispatch order, to the detriment of the citizens of Boston," said Menino.
The US has four terminals through which it can import LNG. Until recently, only the Everett facility and a terminal in Lake Charles, La., were operating.
However, Southern LNG Inc., a unit of El Paso Corp., Houston, has just reactivated its Elba Island LNG terminal near Savannah, Ga. Another mothballed LNG terminal at Cove Point, Md., is scheduled to be brought back on stream next year.
Those four plants have an aggregate sustainable capacity of 840 MMcf/year, said industry officials.
But LNG imports are projected to jump to 2.5 tcf/year by 2006 as the industry scrambles for new sources to supply a projected US demand for 30 tcf/year of natural gas in 2010, said John E. Hodgin, executive vice-president of Ryder Scott Co. LP, Houston, at a recent industry seminar (OGJ Online, Sept. 25, 2001).
He said several new LNG terminals are proposed, including two in Louisiana with combined capacity of 720 bcf/year, three along the Texas coast totaling 600 bcf/year, and one on Mexico's Pacific coast at 360 bcf/year, targeting the California market.
However, concerns about LNG safety or new regulations that would increase costs or delay construction could discourage such projects.
It's too soon to determine if similar restrictions will be imposed on LNG imports outside of the "unique" safety factors affecting the Everett terminal, Menino told OGJ Online.
"The low market price for natural gas is more of an economic threat to LNG," she said. "What makes LNG economic in the Boston market right now is that it's the supply for those peak demand days when no other source is available. The pipelines can't get enough gas into that market right now."
Contact Sam Fletcher at [email protected]