The Oilheat industry is facing a little less pressure now following last month’s decision by Kinder Morgan to abandon the proposed Northeast Energy Direct Pipeline (NED), which would have brought natural gas from the Marcellus Shale formation in Pennsylvania through New York State and into Massachusetts, New Hampshire and Maine.
In announcing its decision, the pipeline developer cited an inability to attract sufficient firm capacity commitments from utility companies and other users. The 181-mile pipeline had an estimated $3.3 billion cost that would have been borne largely by New England ratepayers through utility bill surcharges.
While several governors in the New England states were supportive of the project and the Massachusetts Public Utility Commission (PUC) had given approval for Kinder Morgan to sell firm capacity contracts for the pipeline, those additional capacity contracts never materialized. The project also faced firm opposition from elected officials, environmental groups, ratepayers and homeowners throughout the region.
The New England Fuel Institute (NEFI) and its affiliated state associations all opposed the pipeline project, pointing out that the current liquid fuels infrastructure has provided sufficient diesel fuel for regional power production needs, especially in the cold winter months, whenever natural gas pipelines were incapable of meeting demand for natural gas for electric power production.
A Great Victory
Oilheat association leaders hailed the decision as an important victory that was influenced in part by lobbying on behalf of the retail liquid fuels industry. “This is another win for liquid fuel dealers in the Northeast,” said NEFI Chairperson Sharon Peterson. “I am pleased that economics prevailed and that ratepayers are not forced to pay for additional infrastructure that even the Attorney General of Massachusetts agrees we do not need.
“Our industry provides reliable, clean, and safe energy to thousands of customers and we are happy that we can continue to do so, on a level playing field. This is an inning we have won and we have to keep playing.”
Michel Ferrante, President of the Massachusetts Energy Marketers Association (MEMA) called the news a significant win for the industry. “We had a small, but important role talking with [Massachusetts] Attorney General Maura Healey about the potential impact on our industry,” he said. “Our message resonated. We were not the only voice in the debate, but we made an impact. The Healey report was the cudgel that whacked this thing into space.”
Ferrante and NEFI’s Advisor for Public Policy and Industry Relations, Michael Trunzo, met with members of Healey’s staff in the summer of 2015 and discussed the industry’s concerns. In November Healey published a report, prepared by The Analysis Group, which found that the regional liquid fuels infrastructure, along with free market economics for hedging commodities, would provide enough fuel to secure the region’s power generation needs until 2030.
“We had ongoing communication with them prior to the report’s publication,” Ferrante said. “We were able to spell out what the industry has done and can do about cleaning up its fuel and about how valuable our industry is in the marketplace. We showed the importance of having a strong energy mix and demonstrated how dependable our industry has been.”
Lobbying Pays Off
“NEFI and MEMA made a tremendous impact on this process,” said Christian A. Herb, President of the Connecticut Energy Marketers Association (CEMA). “Kinder Morgan will never acknowledge that, but it is beyond doubt that their effort contributed to this.”
The associations helped bring another major player into the picture in the Conservation Law Foundation (CLF), according to Herb. A national and regional environmental group, CLF filed suit against the Massachusetts Public Utility Commission after it approved Kinder Morgan’s application to sell firm capacity contracts for the pipeline.
“CLF acted on their own, but NEFI had gone to them to discuss the issue,” Herb said. “These things don’t happen on their own. It is the associations out there working for our industry.”
Kinder Morgan’s decision is a clear indication that the energy markets speak for themselves, according to the CEMA executive. “No matter how hard government tries to collude with pipeline operators and utilities, the economics always determine whether these projects move forward. Despite Connecticut having passed legislation that would allow ratepayers to subsidize the Kinder Morgan project, the underpinning economics were not adequate to allow this to happen.”
Thomas Tubman, Executive Director of the American Energy Coalition, also hailed the decision as an important one. “The announcement yesterday by Kinder Morgan to abandon their [project] comes as a welcome move to many opposing the project. It is especially good news for New England gas and electric ratepayers who were being targeted to support the cost of this multi-billion dollar project.
“In abandoning the project, Kinder Morgan appears to be saying that NED is not a good investment for Kinder Morgan. This is an argument that foes have been posing for quite some time, and now Kinder Morgan appears to be validating the claim of their opponents: If NED is such a good investment, why doesn’t Kinder Morgan make the investment themselves instead of insisting on having ratepayers pick up the tab?”
Conversion Threat Abates
MEMA’s Ferrante predicted that the defeat of the Northeast Energy Direct pipeline will play a major role in moderating the rate of fuel conversions, because the utilities had big plans for leveraging the added capacity. “The Oilheat industry can breathe a huge sigh of relief with regard to the specter of conversions relating to the build-out of the pipeline,” he said.
The pipeline’s defeat leaves one utility, Berkshire Gas Co., of Pittsfield, MA, in a quandary, because it had declared a moratorium on natural gas hookups until the pipeline was built. As of April 20, the company continued to insist that it would not add natural gas customers in eight Massachusetts communities.
Utilities in Massachusetts have another important matter to face too, according to Ferrante. The state Legislature in 2014 passed a natural gas pipeline repair and safety bill that requires them to repair aging and leaky pipelines. “The utilities now have to pay attention to their own infrastructure,” he said. “We had posed the question to the attorney general of how they could consider expanding capacity when the state had passed a bill saying the utility infrastructure is old and in need of repairs. The utilities are under pressure to fix their existing capacity and modernize their system of transporting fuels.”
AEC’s Tubman said the decision also reopens the energy policy debate in New England. “Reliance on natural gas has grown exponentially over the last decade or so. And with nuclear and coal-fired electric generation facilities closing or scheduled to close, reliance on natural gas to generate electricity now exceeds 50 percent. The market needs a more responsible and diverse mix of fuels to protect the future reliability of the electric grid and to ensure reasonable electric costs in the future. Without a limitless supply of natural gas underwritten by ratepayers, electric generators and natural gas utilities will need to make responsible business decisions acceptable to their shareholders, similar to what other for-profit corporations do every day, and not rely on their bottom line being propped up by preferential failed public policy.
“Finally, this decision by Kinder Morgan is good news for Oilheat retailers and the Oilheat Industry as a whole. After years of exceptionally low natural gas prices, heating oil prices have come down and are now competitive with gas. Kinder Morgan’s decision to walk away from this pipeline marks the beginning of a more level competitive marketplace for Oilheat. Domestic supply is plentiful, the price is competitive, and with Ultra Low Sulfur Heating Oil and a 2 percent biodiesel component, Oilheat appliances are now cleaner-burning than natural gas. Without the pipeline, public policymakers will be forced to adopt a more responsible mix of energy sources.
“Many people and groups are breathing a collective sigh of relief today, including the Oilheat Industry,” Tubman added.
NEFI Advisor for Public Policy and Industry Relations Michael Trunzo and Oil & Energy Editor John MacKenna contributed to this report.