Regional Market Trends Forum
“Ten Years After”Gas & Power in Perspective
Richard Levitan, [email protected] 1, 2014
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Agenda2014 Polar Vortex v. 2004 Cold Snap
Gas Markets and Infrastructure: Then and Now
Northeast P/L Infrastructure & Sources of Supply
Gas-Electric Interface Issues
Lessons Learned
Unresolved Issues
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Cold Snap v. Polar Vortex: Heating Degree Days
1,10
41,
159
1,33
31,
520
Nor
mal
HD
Ds
Jan-
14 H
DD
s
1,00
81,
123
1,02
01,
134
Source: National Weather Service Climate Prediction Center
1,37
7
Jan-
04 H
DD
s1,
373
1,21
3
1,20
3
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Cold Snap: January 14-16, 2004Near design day criteria in January 2004
• Higher HDDs in Jan ‘04 v. Jan ‘14 • Lower HDDs in Winter ‘03/04 v. ‘13/14
Capacity limitations on P/L’s serving New England and downstate New York
High generating plant outages due to deliverability constraints
Oil deep-in-merit bulk power security
Oil inventory management concerns, incl. refill
ISO-NE pushed to the limit, OP4 on 1/14
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2004 Cold Snap Observations ISO-NE experienced difficulties forecasting unit
availabilities due to gas delivery restrictions
Limited coordination between ISOs and P/L’s / LDCs
Additional fuel diversity and dual-fuel capability needed
Non-firm transportation held by generators at the root of availability problems, i.e., wholesale market design
Market efficiency objectives subject to debate
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Polar Vortex: January 2014Extreme, sustained cold blanketing the Eastern
Interconnect
Constraints on P/L deliverability, incl. force majeure
High LDC sendout, high electricity demand
High generating plant outages, incl. gas, coal, wind, hydro
Historic draw-down from conventional storage fields
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Winter 2013-14 ObservationsFrequent gas price super spikes
• Oil often deep-in-merit high levels of economic scheduling and dispatch of oil-fired generation
Most oil-fired generation was capable of being replenished by barge / truck
• Extreme challenges beginning January 24th due to 7+ consecutive days of cold weather conditions
Direct-connect generators w/ confirmed gas nomslargely successful operating on gas, incl. during System Alerts and OFOs
Local dual fuel capable units operated on oil
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Winter 2013-14 Observations (cont’d)
P/L OFOs required daily balancing during cold snaps• Ratable take requirements constrained flexible gas plant
scheduling
LDCs’ OFOs reduced daily balancing flexibility and limited hourly takes during cold snaps
• Limited curtailments / interruptions as oil capable units induced to switch
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Cold Snap v. Polar Vortex: Gas MarketPeak Day Prices ($/MMBtu)
LNG Imports (Bcf/month)
January 2014(Highest Avg. Daily Price)
January 2004(Highest Daily Close)
Transco Z6 NY $123.81 (1/21/14) $70 (1/14/04)AGT Citygates $75.48 (1/22/14) $60 (1/14/04)Tetco M3 $74.05 (1/22/14) $65 (1/14/04)
Everett Cove Point CanaportJanuary 2004 16.6 16.2 N/AJanuary 2014 5.5 0.0 3.0
Source: Bloomberg, DOE Office of Fossil Energy
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Interstate Pipelines Operating in the Northeast
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Cold Snap v. Polar Vortex: Gas Prices
0
20
40
60
80
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140
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Tran
sco
Z6 N
Y ($
/Dth
) 2004 2014
0
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90
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Algo
nqui
n C
ityga
tes
($/D
th)
2004 2014
0
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8
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Dom
inio
n So
uth
Poin
t ($/
Dth
)2004 2014
-40
-20
0
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60
80
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TZ6N
Y -A
GT
CG
($/D
th)
2004 2014
Source: Bloomberg
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Next Day Strip Prices, January 2014
0
25
50
75
100
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150
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1/31
Price ($/M
MBtu)
Transco‐Z6 (NY)
(High, Low, Weighted Average)
Source: ICE
0
25
50
75
100
125
150
1/2
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Price ($/M
MBtu)
Dominion‐South
0
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50
75
100
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150
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Price ($/M
MBtu)
Algonquin Citygates
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Cold Snap v. Polar Vortex: Electric MarketHighest Real Time Price ($/MWh)
Peak Electric Demand (MW)
January 2014 January 2004ISO-NE $1,117 (1/28/14) $920 (1/14/04)NYISO (NYC) $2,064 (1/7/14) $988 (1/15/04)
ISO-NE NYISOJanuary 2004 22,818 (1/15/04) 25,262 (1/15/04)January 2014 21,293 (1/7/14) 25,738 (1/7/14)
Source: NYISO, ISO-NE
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Cold Snap v. Polar Vortex: DAM Electricity Prices
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700
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NYI
SO -
NYC
($/M
Wh) 2004 2014
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800
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ISO
-NE
($/M
Wh)
2004 2014
Source: NYISO, ISO-NE
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Northeast Gas & Electricity Prices (Monthly Averages)
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160
180
200
0
5
10
15
20
25
30
Dec‐12
Jan‐13
Feb‐13
Mar‐13
Apr‐13
May‐13
Jun‐13
Jul‐1
3
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Electricity Price
$/MWH
Natural Gas Price $/MMBTU
Average of AGT CG Average of TZ6 NY Average of HH
Average of MassHub Average of NY Zone J
Source: Bloomberg
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ISO-NE Winter Reliability ProgramTariff revisions implemented prior to winter 2013/14
Established oil inventory provisions for oil and dual-fuel capable units
Competitive bidding process secured ~ 2 million MWh (oil capable units)
• Program weighed down energy prices (~25% GWh oil-fired)
• Regional basis differentials sharply inverted (despite +1 Bcf/d of new delivery capacity into NYC)
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New England Supply Diversity
Source: Pipeline EBBs
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Then v. Now: Post-Shale Gas Flow Patterns
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0
2
4
6
8
10
12
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Mar
cellu
s Pr
oduc
tion
(Bcf
/d)
Then v. Now: Radical Change in Traditional Flows2004 Strategic Solution: Increased LNG ImportsShale gas has upended conventional wisdom
• Long haul transportation from WCSB obsolete
• Marcellus gas has supplanted gas from GoM and Canada
• Declining Sable Island production, uncertainty around Deep Panuke
• Reversal of flow through New York / Ontario
• LNG imports limited to contract quantities, periodic arbitrage◦ Flexible cargoes to
EU or Asia Source: Bentek Energy
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Pending Regional Pipeline Expansion Projects
Source: Northeast Gas Association
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LNG Imports to New England
Source: DOE Office of Fossil Energy, NEB
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Distrigas Sendout to Algonquin and Tennessee
Source: Pipeline EBBs
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Canaport Sendout to M&N
Source: M&N EBB
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Atlantic Canada Production
Source: CNSOPB, M&N EBB
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Algonquin Boundary Flow into New England
Source: Algonquin EBB
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Deliveries to Manhattan via new Spectra P/L
Source: Texas Eastern EBB
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Then v. Now: Gas-Electric Interface IssuesCoordination among ISOs, P/L / LDCs has greatly
improved Improved generator flexibility thru gas/electric
scheduling changesLoss of New England’s P/L portfolio diversity heightens
risk exposure High basis and volatility here to stay until pipeline
enhancements alleviate congestion• NYISO benefited by supply push P/L improvements
• ISO-NE not benefited to date by demand pull projects
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Then v. Now: Gas-Electric Interface IssuesExisting ISO wholesale market design does not induce
genco commitments for FT• Threshold pipeline credit requirements further complicate
the financial / market challenge
Bulk power security hinges on oil• At-risk units for retirement• Environmental concerns• Restrictive operating limits when units are scheduled on
oil
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Band-aids v. Surgery? Band-aids include:
• Improved communication and coordination• NAESB reforms to promote gas/electric scheduling alignment• Improved understanding thru technical study• Greater nom / scheduling flexibility to accommodate genco dispatch• Socializing the cost of oil and/or LNG inventory management
Surgery includes: • Regional solutions, i.e., substantial new P/L facilities into New
England• Substantial changes to the existing penalty structure for fuel-related
non-performance• Socializing the cost of new P/L facilities
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Final thoughts
What would Doc Brown, say?
What would TR say?