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Massachusetts Low Gas Demand Analysis: Final Report

 

EXECUTIVE SUMMARY

New England’s natural gas infrastructure has become increasingly stressed during peak winter periods as regional demand for natural gas has grown. This situation has led to gas supply and transmission deficits into the region for the gas-fired electric generators during those winter months. Insufficient natural gas capacity for the electric sector has contributed to high wholesale gas prices to generators and thus high electricity prices. Furthermore, as non-gas generators retire and gas generators replace them, the New England electric system is becoming more dependent on natural gas generators. Governor Patrick directed the Department of Energy Resources (DOER) to determine whether or not new natural gas pipeline infrastructure is needed in the Commonwealth.

DOER retained Synapse Energy Economics (Synapse) to utilize current forecasts of natural gas and electric power under a range of scenarios, taking into consideration environmental, reliability and cost answering two key questions:

• What is the current demand for and capacity to supply natural gas in Massachusetts?
• If all technologically and economically feasible alternative energy resources are utilized, is any additional natural gas infrastructure needed, and if so, how much?

Eight scenarios (listed in Table ES-1) were evaluated from an economic and reliability perspective and were then assessed for compliance with the Massachusetts Global Warming Solutions Act (GWSA) targets.

From 2015 through 2019, electric generators have insufficient supply of natural gas, which results in spiking natural gas prices. Scarcity-driven high natural gas prices will force economic curtailment of natural gas-fired generators in favor of oil-fired units. The combination of increased oil utilization for electricity generation together with the use of emergency measures such as demand response and the ISO-NE Winter Reliability program (through January 2018) will allow electric demand to be met. From 2020 to 2030, existing and planned capacity plus incremental pipeline capacity balances system requirements.

Critical to this result is the assumption that winter peak hour gas shortages cannot be addressed using known measures (e.g. demand response or the addition of new natural gas pipeline) in years 2015 through 2019 and, as a result, gas prices are expected to reflect an out-of-balance market in those years. The electric sector responds to these high prices by shifting dispatch from gas to oil generation in the peak hour, reducing reliance on natural gas. In years 2020 through 2030, in contrast, winter peak hour gas shortages can be met using known measures (incremental pipeline) and, as a result, gas prices are expected to reflect an in-balance market in those years. The electric sector no longer has a price signal to shift dispatch away from gas generation in the peak hour, greatly increasing gas requirements and reducing reliance on oil in comparison to the previous period.

The amount of pipeline required differs based on scenario assumptions (see Figure ES-1). Year 2020 pipeline additions range from 25 billion Btu per peak hour to 33 billion Btu per peak hour (0.6 billion cubic feet (Bcf) per day to 0.8 Bcf per day).2 Year 2030 pipeline additions range from 25 billion Btu per peak hour to 38 billion Btu per peak hour (0.6 Bcf to 0.9 Bcf per day).

Figure ES-2 compares Massachusetts natural gas capacity to the natural gas demand in the winter peak hour in three scenarios selected to highlight the progression of reducing gas shortages from a scenario with existing policies only, to the addition of technically and economically feasible alternative resources (i.e. renewable energy and energy efficiency measures), to the addition (inclusive of alternative measures) of new transmission from Canada:

• Scenario 1: Base Case is the base case with reference natural gas price and no incremental Canadian transmission,
• Scenario 5: Low Demand is the low energy demand case with reference natural gas price and no incremental Canadian transmission, and
• Scenario 8: Low Demand + Incremental Canadian Transmission is the low energy demand case with reference natural gas price and 2,400-MW incremental Canadian transmission.

In all scenarios electric sector gas use increases between 2019 and 2020 as gas pipeline constraints are reduced, price spikes become less frequent, resulting in lower gas prices. Lower gas prices reduce economic curtailment of gas-fired units and increase gas use while reducing reliance on oil-fired units and oil use.

Figure ES-3 compares the projected emissions of Scenarios 1, 5 and 8 through 2030 with GWSA targets for the heating gas and electric sectors (refer to Section 4.3 for explanation of how targets are derived). The gas heating and electric sectors “2020 GWSA Target” depicted below would allow the GWSA 2020 emissions limit to be met, taking into account expected emissions from other sectors. While no scenario meets the GWSA targets for the heating gas and electric sectors in 2020, Scenario 8 (low energy demand case with reference natural gas price and 2,400-MW incremental Canadian transmission), shown below, and Scenario 7 (low energy demand case with high natural gas price and no incremental Canadian transmission) meet the target in 2030. Scenario 5 (low energy demand with reference natural gas price and no incremental Canadian transmission) exceeds the 2030 GWSA target by 0.4 million metric tons or 1 percent of the 2030 statewide emission target.

The 2020 emission level for Scenario 8 shows an approximately 1.6 million metric ton CO2 gap from the target (25.0 million metric ton CO2 compared with the target of 23.3 million metric tons). The December 2013 GWSA 5-Year Progress Report also identified a potential shortfall in greenhouse gas reductions by 2020 for the buildings—including energy efficiency—and the electric generation sectors.

The difference in each scenario’s costs from that of Scenario 1 (base case with reference natural gas price and no incremental Canadian transmission) is shown for Scenario 5 (low demand case with reference natural gas price and no incremental Canadian transmission) and Scenario 8 (low demand case with reference natural gas price and 2,400-MW incremental Canadian transmission) in Figure ES-4. Scenario 5 costs exceed those of Scenario 1 by less than $100 million in each year through 2020 and less than $200 million each year thereafter. In Scenario 8, the addition of new Canadian transmission in 2018 reduces overall costs in comparison to the low demand case without new transmission (Scenario 5) in 2018 and 2019 because of the large reduction in electric system costs provided by new transmission in those years. Starting in 2020, the Scenario 8 costs exceed those of Scenario 5 as more alternative resources are introduced.

Table ES-2 reports the difference in each scenario’s costs from that of Scenario 1 in net present value terms over the study period (2015 to 2030), along with the pipeline required by 2030. The addition of technically and economically feasible alternative measures (Scenario 5) adds $1,433 million in costs (i.e. capital, maintenance, fuel) to Scenario 1, while the addition of both these alternative measures and a 2,400-MW incremental Canadian transmission (Scenario 8) adds $2,157 million in costs to Scenario 1. Note that in the low natural gas price sensitivity, Massachusetts costs fall in comparison to scenarios run with the reference gas price. While Scenario 2 (base case, low gas price sensitivity, no incremental Canadian transmission) has $8.6 billion in cost savings compared to Scenario 1, Scenario 6 (low demand case, low gas price sensitivity, no incremental Canadian transmission) has $0.3 billion in added costs compared to Scenario 1. This difference in costs is due to the costs of implementing the low demand measures included in Scenario 6.

This study’s results are sensitive to numerous assumptions made in our analysis. These assumptions have been caveated throughout the following report and include important assumptions regarding multiple topics, laid out in detail in the following report. Any interpretations of this study’s results should make full consideration of all specified caveats.