E&E Publishing
Tight global LNG supplies squeeze the New England grid

Friday, June 08, 2012

New England's supplier of liquefied natural gas fuel to power plants continues to search for immediate ways to replace essential LNG shipments that were canceled because of terrorist attacks on a pipeline in south Yemen in March and April.

"The LNG spot market is pretty much controlled by Asia," said Bentek Energy analyst Ross Wyeno. "The nuclear crisis in Japan has exasperated tightness in global LNG markets," and supply capacity has been squeezed further by maintenance programs at terminals that had been delayed from last year, Wyeno said.

Currently, "there is a little bit of spot LNG going into the market. In the high demand period [in winter], we expect LNG markets to get short and continuing to get shorter over the next few years," said Wyeno's colleague Chris Micsak.

LNG spot prices have hit $18.55 per million British thermal units (MMBtu) in the Japan-Korea market, Wyeno said. "That is a telling figure. If you can sell a cargo for $18, and transport it for $3 from the Atlantic, you're driving up prices there as well.

"We expect LNG markets to get short and continuing to get shorter over the next few years. Without a fairly significant price event in the Northeast, it will be difficult for the market to attract those cargoes. We need to see more export capacity coming on," Wyeno said.

"You can't get anyone to commit [to a major new pipeline into New England]," said Bentek analyst Katie Jolly. "I've seen a few proposals for pipeline expansions. But [the pipeline companies] can't get anyone to commit" the financing. Utilities that distribute gas to homes and offices for heating have highly predictable schedules and are willing to sign the long-term fixed delivery contracts that pipeline developers want in their pockets before building new infrastructure.

New England power plants burning gas cannot be certain from one day to the next whether their power will be called on to run in any particular hour a day ahead. A long-term fixed supply contract makes no economic sense for them, the power industry says.

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