Natural gas as alternative heating fuel in New England

Natural  Gas  for  Heat  in  Maine  “Don’t  bet  the  farm  on  it”  

A  Realis:c  Assessment  for  the    

Commercial  and  Ins:tu:onal  Sector  May  2013  

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www.pelletco.com  

Executive Summary •  Natural Gas is only available in select areas of Maine today

•  90% of current consumption is for Electrical and Industrial use

•  NG is unlikely to be available throughout Maine –  Cost $1M/mile to build out –  Usage density insufficient –  Pipeline construction in Maine will be limited leading to limited availability

•  Maine competes with New England region for NG –  Prices will not drop below Massachusetts “floor” –  Price will likely remain in $10+/mcf with upward bias

•  Transportation of NG to Maine is a limiting factor

–  ~1.4B Bcf/day total –  ~ .15 Bcf/day available for other uses –  National prices are quoted based on Henry Hub in Louisiana –a long way away –  Moving the NG adds on average $6.25/MCF to Henry Hub prices

•  A number of factors make NG a potentially risky choice –  Limits on supply-pipeline capacity –  Massachusetts demand sets a floor –  History of price spikes-especially in winter months –  Exports provide a more attractive market price

May  13   2  ?  

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Three  prerequisites  for  Natural  Gas  (NG)    

Availability  

The  customer  must  be  able  to  receive  

natural  gas.    

Supply  

Sufficient  natural  gas  when  the  customer  

needs  it  

Price  

The  price  must  be  compe::ve  and  

stable  

May  13   3  ?  

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Current Availability of NG is limited and tied to Electrical plants and Industrial users

•  75  Billion  cu.T.  of  NG  consumed  annually  in  Maine  

•  Of  this:  –  >  50%  used  for  electricity  –  ~40%  used  for  industrial  –  Leaving  only  10%  for  other  

uses  (Heat)  

•  Availability  is  closely  :ed  to  electrical  power  and    industrial  usage  

May  13   4  ?  

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NG pipeline capacity is limited and new pipelines cost ~$1M/mile to build-that means many commercial customers

are required

PNG  Capacity  =600MMcf/day  

Mari:mes  Capacity  =800MMcf/day  

Maine  annual  consump:on  is  70  Bcf/year  

Adding  pipelines  takes  $$$  and  Time  -­‐Economic  Costs  -­‐Regulatory  approvals  -­‐Time  to  trench  and  build  

May  13   5  ?  

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Commercial Customers are paying over $10/MMBTU (mcf) for Natural Gas

May  13   6  ?  

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Isn’t Natural Gas in the $4 range?

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Henry  Hub  Price  

Maine  Commercial  

Average  premium  is  $6.25  (consistent  with  today)  Difference  is  availability  in  Maine,  Transporta:on,  taxes  and  other  add-­‐ons  

$/mcf  

May  13   7  ?  

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NG travels a long way from storage to Maine

May  13   8  ?  

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Source:EIA  

         Henry  Hub  price  is  loca:on  

specific  

Prerequisites for Natural Gas (NG)

• New  pipelines  will  focus  on  single  large  users  such  as  Electric  producers  and  Large  mills  

•  If  you  are  in  an  area  currently  served  or    happen  to  be  near  a  u:lity  or  large  mill,  you  may  get  availability.  

• Time,  money  and  regulatory  approval  

Availability  

The  customer  must  be  able  to  receive  natural  gas.    

• Pipeline  capacity  is  limited  into  Maine  and  New  England.      And  so  pipeline  capacity    is  a  scare  resource    

• Storage  for  natural  gas  is  far  away  and  the  NG  has  to  be  moved  to  Maine  at  the  right  :me  (limited  local  storage)  

Supply  

Sufficient  natural  gas  when  the  customer  needs  it  

• Massachuseks  sets  a  floor  on  pricing  due  its  proximity    and  large  demand.  

• Long  term  NG  becomes  a  valuable  export  commodity.  

• Exports  are  at  a  higher  price  than  domes:c  use  

Price  

The  price  must  be  compe::ve  and  stable  

May  13   9  ?  

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