N.E. looks to Maritimes as answer to LNG needs

PROVIDENCE, R.I. – In just a few short years, New England may run short of natural gas.

Energy analysts predict that by 2010, and perhaps sooner, there won’t be enough supply to fulfill the region’s energy needs. But plans to ensure supplies don’t run short by building liquefied natural gas terminals in New England to house it face stiff opposition.

Opponents say highly flammable LNG is too risky to store in heavily populated areas, and security measures to protect tankers that bring in LNG shipments will be a burden. Some have proposed putting terminals offshore, but those plans concern fishermen and environmentalists.

One option being trumpeted by Rhode Island Gov. Don Carcieri and others is: two new LNG terminals being built in Canada that can use an existing underground pipeline to send gas to New England.

But the plan depends heavily on the good will of another government – and its regulations – for a crucial energy source. Some say gas from Canada could be more expensive, and there’s no guarantee how much gas the New England market would get.

“You have elected officials that say, ‘Let’s build LNG facilities in the Maritime Provinces and bring the gas here,'” said Tom Kiley, president and chief executive of the Northeast Gas Association, a Needham, Mass., nonprofit industry trade association that represents local distribution and pipeline companies and supports building an LNG terminal in New England. “Well, they don’t have control over where that gas goes.”

Long reliant on heating oil due to its older housing stock, New England came late to the natural gas market compared to the rest of the country. Thirty-five percent of households in New England use natural gas, the lowest percentage among all regions of the country, according to the U.S. Department of Energy’s Energy Information Administration. Fifty-five percent of U.S. households heat with natural gas, according to the agency.

Natural gas demand in New England is expected to grow 1.4 percent annually on average from 2003 to 2025, according to the EIA; that translates into a 35 percent increase in usage during that time.

While that level of growth may not seem extraordinary, the key is its effect during so-called peak days, when demand is highest and the system is strained. Experts say supply is stretched thin even now during peak periods, because the main and secondary pipelines are at capacity. As recently as January 2004, the region endured a gas crunch when high demand caused by unusually cold weather and market forces put unexpected pressure on the infrastructure and caused prices to spike.

Also, New England is at the end of the pipeline network and has no underground storage capacity, which can make it especially susceptible to weather problems or disruptions such as if a pipeline were damaged or failed.

“We’re close to capacity at peak days, and if that is affected by something we haven’t planned for, then that’s a cause for real concern,” said John Shea, director of environment and energy programs at the New England Governors Conference.

About 80 percent of New England’s gas now comes through pipelines from western Canada, reserves in U.S. waters in the Gulf of Mexico and offshore deposits near Sable Island, off the coast of Nova Scotia. The remainder comes from ships transporting LNG to a terminal in Everett, Mass., a few miles from Boston.

To help meet the region’s growing demands, energy companies have proposed at least seven LNG projects in New England, from Maine to Connecticut. Only one has received federal approval – a proposed terminal in Fall River, Mass., that’s opposed by local and state officials from Massachusetts and Rhode Island, which Fall River borders.

Across the border in Canada, construction has already begun on Irving Oil Limited and Repsol YPF’s Canaport LNG facility in New Brunswick and Anadarko Petroleum Corp.’s Bear Head LNG terminal in Nova Scotia. Together, they could yield up to 2 billion cubic feet per day of gas – nearly half the current maximum daily usage in New England.

At the 29th annual Conference of the New England Governors and the Eastern Canadian Premiers in August in Newfoundland, representatives from several New England states discussed the Canadian LNG projects with Atlantic Canadian premiers. Carcieri, who attended the conference as co-chairman, said unlike New England, Canadians eagerly support them.

“It’ll be good business, a good opportunity for them,” he said.

Government officials in New Brunswick and Nova Scotia said the projects are in areas accustomed to industrial activity.

“Folks are comfortable with it and are anxious to have the economic opportunities that those developments bring,” said John Perkins, spokesman for Nova Scotia’s Department of Energy.

Both the Bear Head and Canaport terminals are due to begin production in 2008, and spokesmen for each say the projects will supply the New England market.

“That is the primary destination” for the gas, said Lee Warren, a spokeswoman for Anadarko.

The terminals would tie directly into the Maritimes & Northeast Pipeline, which already serves New England. Experts say the major cost appears to be in transporting the gas through the pipeline, with Kiley estimating it to be about $1.30 per million cubic foot. That compares to about $0.74 per million cubic foot to send gas through pipelines from the Gulf Coast.

“There is a cost to doing that, to preventing stuff from coming into New England, and people ought to recognize that,” said Jim Jensen, president of Jensen Associates, a Weston, Mass., natural gas consulting firm.

Other governors of states where LNG terminals are proposed have not said whether they support increasing dependence on natural gas from Canada.

Maine Gov. John Baldacci has said he would consider supporting a well-planned site in his state.

Massachusetts Gov. Mitt Romney, who opposes the Fall River project, is open to reviewing proposals that aren’t located in residential communities. In September, he called an LNG terminal proposal on an island in Boston Harbor – which environmental groups oppose – “very interesting and very valid.”

David O’Connor, commissioner of the Massachusetts Division of Energy Resources, said the state supports diversifying its energy mix, which would include securing more natural gas from the Canadian terminals. But that should be done along with measures such as promoting energy efficiency and other changes to how energy is produced, he said.

“I guess I would just say that Atlantic Canada [terminals] are part of the total solution,” O’Connor said. “They’re not the solution. They’re not the panacea.”