July 21, 2023 [Argus]- Sendout in the first half of this year from Constellation’s Everett LNG import terminal outside Boston, Massachusetts, into the Algonquin and Tennessee Gas (TGP) pipeline systems was the lowest on Argus record.
Just over 800mn cf (23mn m3) of gas was sent into Algonquin and TGP, combined, from Everett between January and June 2023. The second-lowest Everett LNG sendout figure in the first half of a year since 2012 was 2.6 Bcf in 2013, back when Appalachia natural gas production was less than one-third of what it is today.
New England typically relies on LNG imports to meet wintertime demand because of insufficient salt cavern natural gas storage in the region and pipeline constraints that limit its access to Marcellus and Utica supplies. But the mildest winter in more than a decade combined with exorbitant global LNG prices from the Russia-Ukraine conflict and related European energy crisis resulted in low sendout this year.
With Everett’s fate hanging in the balance as its biggest customer, Constellation’s 1,413MW Mystic gas-fired power plant, nears its scheduled retirement date of May 2024, the terminal’s lack of use last winter could fuel arguments that the terminal is no longer needed, hastening its retirement along with the plant.
Mild weather, hot war
While the end of 2022 brought a couple of brutal cold snaps, the rest of the winter heating season was characterized by abnormally mild weather in the eastern US. In New England, where Everett is located, there were 3,557 heating degree days (HDDs) in the first six months of 2023, the lowest since 2012, according to the US Energy Information Administration.
New England typically imports LNG from Trinidad and Tobago in the winter because of its high gas-fired winter heating demand and a paucity of gas pipeline capacity from supply basins. Between 2018-2022, the Everett LNG terminal sent out 6.3 Bcf on average in the first half of the year into TGP and Algonquin, nearly eight times the first-half 2023 sendout.
New England cannot purchase less expensive gas from US Gulf coast export terminals because the Jones Act allows only US-flagged ships to go from one US port to another. There are, at present, no US-flagged LNG carriers.
Constellation has historically been able to buy one or two LNG cargoes during wintertime and park them at Everett to offload LNG as needed, BTU Analytics analyst Connor McLean said. But with prices surging as Europe entered another winter without Russian gas, this became a more contentious strategy.
In December 2022, the prompt-month Dutch TTF settlement price averaged nearly $36/mmBtu, up from the under-$6/mmBtu average for December over 2018-2020.
Constellation paying an elevated fuel price during a mild winter provoked the ire of advocacy groups like the New England public power entity Massachusetts Municipal Wholesale Electric Company (MMWEC). In late May, MMWEC released a statement accusing the New England grid operator ISO-New England, which subsidizes Constellation’s LNG purchases, of allowing hundreds of millions of dollars in fuel costs to be passed on to customers “from Constellation’s LNG purchases, and then selling at a loss … or otherwise disposing of fuel that it turns out Mystic did not need.”
Notwithstanding the historically mild but expensive winter of 2022-2023, Rystad analyst Ademiju Allen said the life expectancy of the LNG terminal could depend on the severity of the upcoming winter. ISO-New England is not going to let people freeze for lack of fuel, he said.
“The weather changes a lot of dynamics, and forces assets to get their life extended,” Allen said.
The frequency of price spikes in the New England pipeline gas market, combined with insufficient alternative fuel sources, make it unlikely that Everett will shut down in the next three to five years, McLean said.
“I’m sure people would like to move towards renewables rather than being dependent on more volatile gas (and LNG) pricing. However, just like we are seeing in markets across the US, there are not enough renewables and battery storage in the region to completely discard natural gas,” he said.
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