What’s the one phrase that can quickly change the mood from festive to foul for any child opening a brand new, shiny toy?
“Batteries not included!”
Or how about that product featured on a home shopping channel or infomercial – you know, the one that’ll make you happy, solve all your problems, and is a great deal. It certainly looks like a bargain until you realize that there are a bunch of hidden costs. Suddenly the final price tag is a lot more than the advertised price. And when it finally arrives, you don’t even use it every day like the commercial said you would. In fact, you only use it a few days a year. So when you consider the price per usage, the cost is really high.
Would you still consider the purchase a bargain? In hindsight, would you have chosen to buy it at all? That would probably depend on a number of factors, including the other options available.
On a much larger scale, this situation mirrors the pipeline proposals into New England that have been widely publicized recently. Various proponents claim that the projects will deliver cheap natural gas from the Marcellus Shale region in Pennsylvania into New England, solving everything from supply constraints on very cold days to high electricity prices year round. But… state officials from across New England are proposing to pay for these projects, totaling some $5-6 billion collectively, through rate increases borne totally by homeowners and businesses across New England 365 days a year for 15-20 years.
With consumers picking up the tab for these new pipelines, what incentive is there to control costs – or to build only what’s really necessary?
One might then also ask if these pipelines, built and paid for by consumers in New England, would ever be used to transport natural gas that would then be exported out of the country, adding profit for the pipeline companies but not the ratepayers who financed the infrastructure. One proponent recently confirmed that these pipeline projects proposed for New England could indeed be attractive conduits for export opportunities.
So when the cost of this “cheap gas” is finally delivered to consumers and shows up on their utility bills, will it still be a bargain? Will it be any less expensive than the energy that is now being purchased by power plants, which includes liquefied natural gas (LNG) that supplements pipeline supplies on cold winter days? No promises are being made.
New England needs supplemental natural gas to meet peak demand during the coldest winter days. There’s no doubt about it. But shouldn’t a solution that addresses only peak demand be preferable to one involving an enormous expansion of costly pipelines? Why does it make sense to build and scale pipelines to meet demand peaks 30-40 days of the year? It only would if pipeline companies don’t have to assume financial risk, but rather have consumers pay the costs.
Natural gas pipelines have historically been financed on a ‘pay as you grow’ basis. Much of the local natural gas demand growth has resulted from natural gas utilities signing on additional heating customers. But this growth is already being accommodated by previously announced incremental pipeline capacity projects that will be placed into service over the next few years.
Beyond this, future load growth is uncertain and/or minimal due in large part to renewable energy, conservation, and energy efficiency efforts. In addition, more homes and businesses are choosing to generate their own power rather than purchasing it from a utility, which will further temper future demand.
At a minimum, consumers should require that all existing natural gas infrastructure — be it pipelines, on and off-shore LNG vaporization facilities, or local utility LNG storage — be fully utilized, and all practical and affordable alternatives brought to bear, before their consumer dollars are spent on subsidized, overbuilt, and expensive new pipelines.
The worst-case scenario is that large new pipelines will be built, and they quickly prove to be “white elephants.”
The fact is that no one currently talking about these issues has a crystal ball. No one anticipated that crude oil prices would plummet as they have. Similarly, no one can predict future Marcellus shale gas prices, or even where those prices will be on the coldest days of the year when New Englanders need natural gas the most. But we do know that gas prices in Pennsylvania have spiked on the coldest winter days in the past – including last winter – just as they have here. And they’ve spiked for one simple reason: supply and demand.
A better solution? Continue to supplement existing pipeline gas with LNG to satisfy the demand peaks that occur 30-40 days of the year. It will be less costly and less disruptive than building expensive pipelines that consumers would pay for year round and for many years to come. With the LNG alternative, the ships are built, and the infrastructure in New England already in place. In other words, all components come in the LNG package – including the batteries.