Over the past two winters, New Englanders have seen soaring electricity prices as a result of a sustained natural gas shortage. Last winter, liquefied natural gas (LNG) supplies helped mitigate supply shortages. That led to a drop in wholesale electricity prices, but utility rates remained elevated, which led many consumers to shop for cheaper retail energy. A new announcement could spell further price declines next winter.
The Boston Globe reported this week that Distrigas of Massachusetts has entered into a 10-year contract to provide several billion cubic feet (BCF) of LNG to a local utility company – most likely National Grid, the state’s largest gas utility. In total, Distrigas has contracted with utilities to provide 9.5 BCF of LNG to the region per year – enough to heat 100,000 homes. This represents an 8 percent increase in supplies compared with last year and 19 percent compared with two years ago. Distrigas and LNG-provider Excelerate have stepped up their efforts to supply gas to the region.
Although LNG can be more expensive than natural gas from pipelines, a worldwide glut of natural gas has driven down prices in recent years. Distrigas, which is owned by the French company GDF Suez, has pegged its contract prices to natural gas prices to protect against LNG contract price spikes. Nevertheless, utilities National Grid and Eversource stressed that LNG is a short-term fix to the region’s energy crisis, not a long-term solution to the region’s energy needs. Both utilities hope to profit by expanding gas pipeline capacity into the region. Eversource also hopes to build a transmission line that would bring hydro power from Quebec, and potentially other power supplies, into the region.
Implications for Retail Buyers
Although there is no guarantee that electricity prices will decline next winter, the additional gas supplies should help alleviate the natural gas supply constraints that led to price spikes last winter. Sustained cold weather next winter coupled with retirements of existing power plants and higher load growth could still lead to price surges, but overall the picture looks better now than in the past two winters.
Retail buyers may want to pursue a “wait-and-see” approach or sign variable-rate contracts that adjust pricing based on current market conditions. They can benefit by monitoring movements in long-term retail prices throughout the region, which can be found in the charts presented by Energy Research Council in the right sidebar of the weekly Retail Energy Buyer newsletter.