Fuel for the City – Dislodging Oil From the Northeast

While most of the country is enjoying the benefits that low cost North American supplies of natural gas bring to local and regional economies, many parts of the Northeast US and Atlantic Canada are still heavily reliant on expensive oil-based products for residential, commercial and industrial use. That is in spite of the proximity of burgeoning supplies of natural gas in the Marcellus and Utica shale basins. The challenge in converting users away from oil lies in infrastructure build out and deciding who will pay. Today we begin a two part series on the slow conversion process and new solutions to supply natural gas to customers before pipeline infrastructure is built.

According to the Energy Information Administration (EIA), for 2011, residential customers in New England and New York used 145 Mb/d of heating oil and gas equivalent to 274 Mb/d.  In other words, northeast residential customers used nearly twice as much gas as oil.  As impressive as this might sound, it pales in comparison with the nation as a whole where residential gas use is ten times the amount of heating oil use.  According to the Northeast Gas Association (see chart below), customers using heating oil, pay, on average, close to an estimated incremental $1,500 per year to heat their homes with oil versus natural gas.  In tight economic times, this money can be better spent.

Source: Northeast Gas Association (Click to Enlarge)

Although western Connecticut is less than 150 miles from the Marcellus production area and the price of natural gas in Connecticut is significantly lower than heating oil, less than one-third of Connecticut residents heat their homes with natural gas.  Worse, less than five percent of Maine residents heat their homes with natural gas.  This low penetration of natural gas is partly due to capacity constraints on interstate pipeline systems from the Marcellus into New England (see The Mighty Algonquin); however, the lack of developed local distribution system infrastructure remains the primary limitation for customer access to natural gas supplies, and in sparsely-populated areas a pipeline distribution system may not be economical.    

Northeast Gas Association data shows the majority of cities and towns in New England and eastern upstate New York remain underserved with natural gas (light areas on the map below show no local distribution company (LDC) franchise present).  Even where areas are franchised and an LDC is present, many customers remain on fuel oil.  The New York Public Service Commission (NYPSC) recently stated that 550,000 households located within 100 feet of a natural gas distribution system still relied on fuel oil to heat their homes.

Source: Northeast Gas Association (Click to Enlarge)

State-by-state natural gas expansion initiatives are underway, with the primary focus of getting low-cost natural gas to all customers. In late 2012 NYPSC initiated a proceeding to consider what steps the commission could take to expand New York’s natural gas delivery systems, including local distribution pipelines as well as trucked compressed natural gas (CNG) and liquefied natural gas (LNG).  In Connecticut, the Public Utilities Regulatory Authority recently signed off on the final version of a plan to convert 280,000 homes and businesses to natural gas heat from oil and other fuels over the next 10 years.  The State of Maine has several programs to improve the economics of energy use for its residential, commercial, industrial, and institutional customers including support of the development of new natural gas distribution systems and providing state-managed funding for interstate pipeline capacity expansions.

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