1. The New England Restructuring Roundtable
Gas Pricing Dynamics Affecting
Power Markets and Resource Adequacy
in New England
Richard L. Levitan,
June 15, 2012

2. Primary Issues & Concerns (next 3-5 Years)
Supply push in PJM / NYISO  demand pull in New England
Slack deliverability during non-heating season insufficient to support new entry
New flow patterns raise questions about economic obsolescence
Anticipated retirement of many RFO / dual fuel steam units, coal
Basis benefits will be indirect and may not materialize in the peak heating season
Destination-flexible LNG cargoes jeopardize fuel adequacy around Boston
Financial / regulatory support for new gas infrastructure
Who pays?

3. Commodity prices remain weak and stable
Spot gas prices at Henry Hub down dramatically from peaks seen in 2008. 2

4. Gas Price and New England Energy Price
New England energy prices follow the City Gates price in general. Summer energy price spikes in 2010, 2011 are not gas price driven, but winter spikes are gas-driven.
ANIMATE to show gas price, then on-peak energy price

5. Blow out in historical parity relationship
The price of crude oil spiked in 2008, plummeted, then recovered steadily over 2009 through early It is shown here in $/MMBtu for compatibility with the HH gas price. The WTI to HH ratio ranges from less than 1.0 to about 2.5 through early 2009, then climbs steadily as gas holds steady or declines while oil skyrockets. The ratio hit a peak of about 9.76 in late April 2012 and has dropped since.
(ANIMATE: Start with HH price, then roll in WTI price. Fade out prices and fade in ratio.)

6. Marcellus Production Forecast
July 2011 projection by Penn State University
Note: forecast is nearly a year old, may be outdated, consider deleting. EIA has reduced its shale gas forecasts.
Source: Penn State University

7. Wet and dry shale gas production
Major Dry Gas Production Area
Wet Gas
Dry Gas
Major Wet Gas Production Area
Sources: EIA, Pennsylvania State University Marcellus Center, Dominion Resources, Pennsylvania Department of Conservation and Natural Resources

8. Gas Basis to New England Reflects Congestion
Algonquin City Gates price is generally higher and much more seasonal and volatile than Henry Hub, due to deliverability constraints.
WE COULD ADD TZ6NY to this chart.

9. Marcellus-related planned projects
None of these projects address constraints into New England
Pipelines unwilling to foot the bill for new infrastructure without FT contracts
Source: NGA

10. Seasonal Basis to New York and New England

11. Estimated P/L slack deliverability, except during winter
0.5 1
1.5 2
2.5
9/1/07
11/1/07
1/1/08
3/1/08
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1/1/12
3/1/12
Daily Deliveries in NE (Millions of Dth/d)
Algonquin
Tennessee
Includes deliveries to interconnections
Dashed lines represent current contract levels
The original copy of this slide was placed at the end.

12. Gas Price Dynamics on DA / RT Prices
E&P outlook likely to sustain downward pressure on prices
Generators bid value  AGT Citygates, TN-Z6
Existing paradigm does not capture M-T-M benefits
FCA prices do not support new gas infrastructure
Attrition effects by FCA #8
Deliverability constraints likely to materialize
Prices will reflect seasonal basis, ULSD
Who bears the transportation freight? 11

13. Gas Price Dynamics on Reliability
Decline in LNG Imports to Canaport and Distrigas
Concerns over adequate fuel to serve Mystic 8/9
Gas flow displacement effects from western and Atlantic Cdn
Coal and RFO steam unit retirements
Posturing RFO steam units in the winter appear key to reliability
ULSD oil tankage constraints and refill logistics
No step-up to firm transportation
How does the stakeholder process evolve?
Less wordy