Eight years ago, Jim Adams closely followed plans to upgrade liquefied natural gas terminals, searching for a source of imported gas that would fuel his company’s power plants.
“Was it coming from Nigeria? Where was it going to come from?” he said. “Then the world changed.”
Enormous gas production driven by horizontal drilling and hydraulic fracturing in the Marcellus Shale in Pennsylvania has turned U.S. gas markets upside down. Now, that seismic shift is spreading to the electric power industry and Northeast Pennsylvania is the epicenter of that change.
At stake are the future of Northeast Pennsylvania communities targeted for pipeline and power plant projects that will change the region’s landscape and consumers who will see price fluctuations when heat and power compete for natural gas in the nation’s pipelines. Ultimately, Americans’ choice for power generation, the highest-emitting sector of greenhouse gases in the world’s second-highest-emitting economy, will have implications for the global climate.
Mr. Adams is senior vice president of fuels for Texas-based Panda Power Funds. The company’s 829-megawatt Liberty natural gas-fired power plant in Asylum Twp., Bradford County, and same-sized Patriot plant in Clinton Twp., Lycoming County, are part of the first generation of new, large generating plants that could proliferate in Pennsylvania and beyond.
Northeast Pennsylvania’s gas prices are regularly the lowest in the U.S., an important factor behind the wave of projects planned for the region. Meanwhile, generators who sell to the region’s wholesale electricity market will also get one of the country’s highest rates for their power.
“We do try to site our plants in locations to receive the cheapest gas and then turn around and sell to the best power market we can find,” Mr. Adams said.
Since 2008, the average price of natural gas sold to Pennsylvania electrical plants has been cut more than in half, declining from a high of $10.46 per thousand cubic feet to $5.04 per thousand cubic feet in 2014, according to the U.S. Energy Information Administration.
Panda is one of several electricity generators with plans for the area. Chicago firm Invenergy LLC is awaiting state and local approvals for its 1,500-megawatt natural gas plant in Jessup. Virginia-based Moxie Energy has also proposed a 1,050-megawatt plant in Salem Twp., Luzerne County.
Meanwhile, pipeline companies have proposed enough pipeline space to take more than 4.5 billion cubic feet per day of gas out of Northeast Pennsylvania, enough to supply about 17 million homes, industry estimates indicate.
The natural gas and power-generating industries moved closer together last month when operators of eight major Mid-Atlantic natural gas pipelines signed a memorandum of understanding with PJM Interconnection. PJM coordinates electricity flow among 13 states, including Pennsylvania, from its headquarters near Philadelphia. It is the world’s largest electricity grid operator.
Transcontinental Gas Pipe Line Co. and Tennessee Gas Pipeline Co. were among the pipeline companies in the deal. A branch of the Transcontinental line passes through Luzerne County on its way to New Jersey. The Tennessee line’s southern leg extends through Pennsylvania’s Northern Tier, including Bradford, Susquehanna, Wayne and Pike counties.
The agreement calls for PJM to develop “clear expectations” for its gas plants and share them with the pipeline companies. In turn, the pipeline companies will give PJM lists of gas-supply services available to power plants and inform PJM of those the plants have already requested.
Last month, PJM officials convened a meeting with natural gas pipeline companies to figure out how the two industries can better work together.
Organizing the flow of gas to power plants that supply 13 states is becoming an intricate ballet. Fall out of sync, and blackouts could be the result.
This almost happened in New England in the winter of 2013-2014, ISO New England president and CEO Gordon van Welie told the group at PJM Interconnection headquarters. His organization is essentially a smaller PJM that serves New England states.
High demand for gas during the frigid 2014 winter combined with a high electrical demand and not enough pipeline capacity left the region within 100 megawatts — the capacity of one small gas turbine — away from rolling blackouts,” Mr. van Welie said.
“That was a very harrowing experience for us,” he said.
That situation led to bizarre effects on the price of gas. Last December, natural gas futures in New England traded at the highest rates in the world, said Philip Moeller, commissioner at the U.S. Federal Energy Regulatory Commission, which regulates interstate pipelines. A few hundred miles southwest in Pennsylvania, natural gas futures traded at the lowest rates in the world.
Lack of pipeline space is to blame for this, Mr. Adams said. New England paid higher gas prices last winter than Japan, India or Europe, all of which are dependent on imports.
“It’s these constraints on the interstate pipelines and the (local distribution companies) that deliver to those power plants that are behind city gates,” he said, referring to the point when gas leaves a large transmission line and transfers to local distribution companies.
More power plants can mean more pipelines. Electricity generators can provide the necessary demand to spur a new project, said Spectra Energy’s regulatory and compliance vice president Richard Kruse at the PJM meeting. “Pipeline expansions are driven by contracts,” he said. “That’s the basic business model we operate on.”
His company is planning to invest $35 billion in pipelines through 2020. “We’re halfway there in terms of securing contracts for that,” he said.
The memorandum between PJM and pipeline companies is intended to encourage power plants to sign up for nonstop gas service, known as a primary firm contract.
The pipelines in PJM’s territory serve power plants that often do not hold these kind of contracts, the memorandum states. It signals that the pipeline companies are willing to “firm up such services where appropriate” and supply gas to more power plants as they come online.
“In many cases, the PJM Pipelines will require additional facilities to provide the flexible services sought by generators to meet PJM requirements on a reliable firm basis,” the memorandum states.
Panda is one of those generators that tries to procure as much of its gas supply as possible through long-term agreements, Mr. Adams said.
“We will buy close to if not 100 percent because that gives us the advantage of knowing our gas is always there,” he said.
Invenergy has signed long-term agreements to ship gas via UGI lines that connect to local Marcellus Shale wells and the Tennessee gas line that runs through Pennsylvania’s Northern Tier but has not finalized any agreements with gas suppliers.
Efforts to reach Moxie Energy representatives were unsuccessful.
In a coal-fired plant, knowing how much fuel available is a matter of checking the stockpile. The same is true with a tank of fuel oil or, at a nuclear plant, the storage facility of fuel rods.
Not so with natural gas, which flows back and forth across the country through pipelines based on a complex system of long-term contracts and short-term supply and demand.
Even with new power plants in the region, Northeast Pennsylvania prices are likely to stay below other parts of the country, said Jeffrey Moore, senior analyst with natural gas market research firm Bentek Energy.
Still, cold days could bring competition for gas for power versus heating uses.
“What you are likely to see in the area are short-term price spikes that will be caused by weather events as competing demand from power generation and heating load will increase price volatility in the region on peak demand days,” Mr. Moore said.
These spikes may occur infrequently on extreme days when supplies will be kept in the area for local consumption instead of sent elsewhere, he said.
One of the main goals of all of the pipeline infrastructure planned for the region is to get supplies to other parts of the country where prices are higher, he said in an email.
New power plants will put upward pressure on the local gas price, but sustaining higher prices over the long term will be difficult, he said. Higher prices will give gas producers incentive to increase production, effectively lowering the price again. Consumer impact
What this means for consumers’ heating bills is less clear. Pennsylvania regulations force natural gas distributors to pass along the price of gas to the ratepayer dollar-for-dollar. Utilities instead profit from upgrades to their gas system and service they provide.
Gas prices delivered to consumers have fallen less steeply than those paid by power plants. Residential prices fell from an average of $16.22 per thousand cubic feet in 2008 to $11.68 in 2014.
How electrical rates might change is even cloudier. The EIA only forecasts electricity prices to 2040 for the country as a whole. Its estimates range from hovering around 10 cents per kilowatt-hour with abundant oil and gas and low economic growth to 13 cents per kilowatt-hour with high prices and growth.
PJM spokeswoman Paula Dupont-Kidd was not able to say how the influx of new power plants in the region could affect Northeast Pennsylvania’s electrical rates.
“That would be speculating,” she said. “I think we’ll know a lot more after we have this next long-term capacity auction.”
Every year, PJM holds an auction where power generators bid to provide electricity for the next three years.
“If a new plant is going to be online by then and going to be able to produce power, they’re going to want to take part in auctions to make sure they have a market there ahead of them to kind of justify what they’re doing,” she said.
Many variables factor into wholesale electrical rates, she said, including a new one this year that offers better compensation to power plants that commit to running constantly.
Panda’s Liberty and Patriot plants will be the first of Northeast Pennsylvania’s new gas plants to come online. The plants already bid into PJM’s capacity market and are committed to supplying power starting in June 2016, public affairs vice president Bill Pentak said.
Invenergy and Moxie have not yet submitted bids.
Market, environmental impacts
Across the country, rising coal prices and looming limits on carbon dioxide emissions from power plants is increasing natural gas’s role in the electricity mix.
Most of the blame for the switch so far belongs to the market. Since the early 2000s, coal prices have risen on average while the price of natural gas has plummeted, according to the EIA.
Electricity generated from gas surpassed coal for the first time in U.S. history for one month in April, traditionally the month of lowest electricity demand. As temperatures rose, coal overtook gas again.
Long-term trends show an ever-narrowing gap between the two fuels. In 2004, almost half of U.S. electricity came from coal, while about 18 percent came from natural gas. In 2014, coal accounted for 39 percent, while gas climbed to 27 percent.
While the market has driven the transition so far, a massive government-planned transition meant to curtail climate change will shift the mix dramatically. The Obama Administration’s proposed Clean Power Plan is the first attempt to regulate carbon dioxide emissions from existing power plants.
Under that plan, 32 percent of the country’s electricity will come from natural gas by 2020 and 31 percent will come from coal. About 17 percent will come from renewable sources like solar and wind.
Even those who consider natural gas a short-term environmental benefit caution overreliance on the fossil fuel. Hanging over natural gas’s lower emissions compared to coal is the specter of methane leaks. Scientists are racing to study how much of the potent greenhouse gas leaks from valves, wells and intentional releases all along the natural gas supply chain.
“I would caution that this rule and this entire process points us in the direction of clean energy,” Larry Schweiger, president and CEO of environmental group PennFuture during a conference call the day of the Clean Power Plan’s release. “Gas at best is a bridge fuel and only if it is regulated carefully to regulate methane leakage. …Gas perhaps will play a short-term role, but we need to be thinking about advanced energy technologies.”
This article was written by Brendan Gibbons from The Times-Tribune, Scranton, Pa. and was legally licensed through the NewsCred publisher network.