Due to the abundant supply of relatively low cost natural gas in the United States, Connecticut has adopted an energy strategy designed, in part, to increase the state's residential, commercial and industrial use of natural gas. This strategy is reflected in a detailed document released on February 19, 2013 by the state's Department of Energy and Environmental Protection (DEEP) entitled the 2013 Connecticut Comprehensive Energy Strategy (CES).
That document is forward thinking, but to be comprehensive, it must address some particularly challenging and thorny issues that will either undermine the very reason for the natural gas initiative or reduce electric reliability in New England, or both.
Natural Gas Goals
At the behest of the Connecticut legislature, DEEP recently prepared and released Connecticut's first statutorily mandated triennial assessment and plan to meet the state's residential, commercial and industrial energy needs. At the core of that plan is a push to expand Connecticut's use of natural gas over other conventional power sources.
As Connecticut Governor Dannel Malloy explained, "the most dramatic element of this strategy is the opportunity presented to us by the increased supply of low cost domestic natural gas." Implementation of that plan has already begun with the Connecticut legislature effectively approving the final CES by passing Public Act No. 13-298, "An Act Concerning Connecticut's Comprehensive Energy Strategy and Various Revisions to the Energy Statutes," which was just signed into law by Malloy on July 8.
Among the stated reasons for the emphasis in the CES on natural gas are abundant domestic supply, favorable costs and environmental advantages. Through the well-publicized use of hydraulic fracturing of shale, or fracking, enough extractable natural gas has been identified to furnish the nation's current use of natural gas for the next 100 years. Indeed, there is even talk of the nation becoming a world energy supplier, which stands in stark contrast to generations of our country's dependence on foreign oil.
With the advancement in technology for fracking, costs also have fallen dramatically, with the result that natural gas commodity costs have fallen to the $3 to $4 per MMBtu range, which are levels not seen for natural gas since 2002. Further, the use of natural gas to replace coal- and oil-fired electric power plants can substantially reduce carbon dioxide emissions associated with global warming. Recognizing these advantages, the CES sets a goal of doubling the penetration of natural gas use by commercial customers, from 35 percent to 75 percent, and increasing industrial sector use from 53 percent to 75 percent.
Gas Supply To Connecticut
Connecticut is not alone in recognizing the advantages of the nation's abundant supply of low cost natural gas, and there are increasing concerns that demand for this gas in New England generally and in Connecticut specifically will outstrip the ability to supply that gas where and when it is needed.
This concern is triggered by some inescapable, fundamental facts. First, today's consumption is already stressing the available capacity to pipe natural gas to New England. More than 50 percent of New England's electricity needs are now generated with natural gas, compared to only 5 percent in 1990 and 15 percent in 2000, with even more growth projected in the use of natural gas to produce electricity. The proposed expansion in the CES of customers relying on gas will further accentuate this dramatic growth in reliance on natural gas.
Second, none of the low cost domestic gas is produced in the Northeast, so it must be transported here. The key new production area for natural gas in the Northeast is the Marcellus shale region in and around Pennsylvania. While Pennsylvania is much closer to New England than the Gulf Coast, where much of the domestic gas consumed in the Northeast previously came from, it still must be moved north and east. Only the Tennessee and Algonquin pipelines supply this lower-cost gas from the Marcellus shale area to New England and those pipelines with the dramatically expanded use of natural gas in the region are often running at or near capacity.
Will Lights Stay On?
There is no question that the current growth in reliance on natural gas is taxing the reliability of New England's power system. These electric operation challenges are particularly acute during cold winter periods when pipelines serving New England from the south and west are most constrained and when there is a greater potential for gas supply interruptions.
In fact, just this past winter, ISO New England Inc., the region's electric grid system operator, reported that New England experienced significant reliability concerns on several occasions that it attributed to a limited gas supply. The supply shortage in New England has also produced and will continue to produce substantial, transient gas price spikes. By way of example, in late January, natural gas prices in New England for two days increased tenfold to over $30 per MMBtu, compared to the $3 to $4 per MMBtu range across the rest of the country.
New England's electric system experienced stresses and strains this past winter even though surplus liquefied natural gas (LNG) from Canada was available for some of the winter, the weather was not particularly cold, and the electricity demand was not unusually high. The region's success in maintaining reliability is leading some to worry that New England's recent warm winters are masking system vulnerabilities that may be exposed in the future. ISO New England has opined that, during future extended periods of "very low winter temperatures and a rise in heating demand, pipelines might not be able to transport enough gas for both homes and power producers, leading to cutbacks in electricity generation and possible power interruptions." To address these significant risks, ISO New England, all six New England states and regional stakeholders from both the electric and gas industries have focused their efforts on developing solutions.
For the lights to remain on, a more comprehensive future Connecticut CES would encourage solutions to the reliability challenges that will result from expanded consumption of natural gas in Connecticut. Reassuringly, the CES at least acknowledges these challenges, stating that "increased demand will naturally increase the need for regional natural gas supply capacity," and further explaining that DEEP will work with gas pipeline developers and the local distribution companies to "ensure that the transmission capacity increases to meet anticipated growth in demand." Consistent with this message and in response to a legislative mandate, Connecticut's local distribution companies recently submitted to DEEP a joint gas infrastructure expansion plan which would, in part, require state approval of a plan for the companies to acquire incremental pipeline capacity through long-term arrangements.
While this expansion plan may help to provide some impetus to address these capacity issues in the future, implementation is by no means assured and any such plan will take time to prepare for and implement. Until this plan or an alternate plan is devised and implemented, Connecticut's large-scale conversion to natural gas will further expose the region to significant reliability concerns because the gas pipelines that New England relies upon the most for its gas supply may not be able to respond to both the real-time demands of the electric system and the state's increased gas usage.
In addition, the region will remain vulnerable to gas price spikes, which would minimize the cost savings and economic growth potential that forms the foundation for Connecticut's CES.
To be truly comprehensive, Connecticut's energy strategy will need to do more than acknowledge the challenges of dramatically expanded natural gas usage and the state should work actively to support regional initiatives to "keep the lights on."•