If winter is bitter, brace for a natural-gas crunch

From Maine to Florida, from Virginia to Missouri, as much as half the United States confronts the possibility that harshly cold weather will lead to restrictions of natural-gas supplies. In some places - areas heavily dependent on natural gas to produce electricity - the prospect of "rolling blackouts," or controlled power outages, is much higher than in previous winters.

Any natural-gas cutoffs would primarily affect electric-power plants and factories fueled by gas, not homes, and be most likely in the Northeast.

If cold deepens for prolonged periods, the likelihood of interrupted natural-gas supplies rises to 30 percent in the Northeast and to 10 percent as far south as Florida and as far west as Missouri, according to a recent report by the Interstate Natural Gas Association of America (INGAA), a trade association representing gas pipeline companies. In a "worst-case" scenario, chances of interrupted gas rise to 40 percent for the Northeast and 25 percent across the eastern seaboard.

Though power-industry officials in New England are the most concerned, noting the region's lack of fuel diversity and propensity for intense cold, the impact could be far broader. If winter temperatures plummet for long, natural-gas supplies could be quickly depleted, leading to a power crunch in some regions and soaring prices across a wider area, experts say.

"By no stretch of the imagination is this only going to impact New England," says Richard Levitan, an energy expert who has analyzed the impact on the utility industry of this fall's natural-gas shortfall after the Gulf hurricanes. "The Southeast, Pennsylvania, New Jersey, Maryland, and New York, they're all going to feel this."

Even so, gas cutoffs would not automatically mean power outages to residential and commercial consumers. Regions with diversified fuel sources, such as the Midwest or Southern states that rely more on nuclear or coal for electricity, are less likely to see power outages at all. In all regions, residential customers who heat homes with natural gas are unlikely to have their supply interrupted, because gas utilities typically have "firm contracts" with distributors.

Overall, 23 percent of America's electricity-generating capacity is fueled by natural gas. In New England, however, fully 40 percent of electricity is drawn from natural-gas-fired power plants, up from just 17 percent in 1999. At least 22 natural-gas-fired plants, with a collective 10,000 megawatts of generating capacity, have been built in the region since the late 1990s - a shift that, at the time, seemed good for business and for the environment (because natural gas burns cleaner than alternatives).

That buildup has left New England's energy mix skewed toward natural gas, which now costs five times what it did three years ago and which is in short supply this winter. This is where the risk is highest for rolling blackouts - shutting off power for 20 to 30 minutes at a time - in sections of the region's grid.

"If gas supplies are disrupted and seasonal oil storage [backup fuel for generators] is drawn down, then we get into a problem where we're now short of electrical generating capacity," says James Coyne, an energy expert at Lexecon, a Boston economic consulting firm.

Such scenarios might seem a distant threat. Winter began mildly, and natural-gas storage caverns are now almost full. Still, hurricane damage continues to block about 6 percent of the nation's gas supply flowing through pipelines north from the Gulf of Mexico. The government reported last week that 32 percent of the Gulf supply remains "shut in" - a loss of 3.2 billion cubic feet per day. That's at the high end of the range the INGAA predicts will be "missing" this winter.

This missing flow of gas could be critical in mid- to late winter, when reserves are drawn down.

"This loss of supply - even if only temporary - is cause for concern," Phillip Wright of Williams Pipeline, the nation's second largest gas transporter, told Congress this month. "It cannot be emphasized enough that storage supplements, but does not replace, natural gas flowing through the interstate pipeline network."

Potential problems exist in New York, where half of the electricity-generating capacity is fueled by natural gas, and Florida, where it is 35 percent. New York's advantage is that two-thirds of its gas-fired generators are "dual-fuel" facilities that can switch to burn oil.

That's not the case in New England, where only about one-third of the gas-fired generators can burn oil as a backup. As a result, the Independent System Operators of New England, which coordinates power delivery and oversees system reliability across the region, is scrambling.

"We're talking to all the New England states about greater fuel diversity to try to develop more than 1,000 megawatts of dual-fuel capacity," says Ken McDonnell, ISO New England spokesman.

Developing new dual-fuel capability, however, takes time. And environmentalists, meanwhile, are protesting moves to lift air-pollution restrictions on dual-fuel power plants that can burn distillate fuel oil. Massachusetts environmental officials are expected to decide soon whether to allow more oil-burning.

In the effort to avoid blackouts, a large hurdle may have just been lowered: utilities' push for profits.

When natural-gas prices have been high during past power crunches, some power companies have elected to sell their gas rather than burn it for electricity. Such "economic outages" occurred in 2004 during one of the sharpest New England cold snaps in years.

On the bitterly cold day of Jan. 14, as winter power demand headed toward a new record, power companies failed to heed grid operators' urgent call to get every functioning power plant in the region online immediately.

As ISO New England battled to prevent blackouts from rolling across the region, nine power plants representing 2,159 megawatts of capacity sat on the sidelines, a post-mortem report on the emergency found. Some apparently were hampered by weather-related problems. But others ignored the plea. With natural-gas prices soaring to 10 times their normal levels, some found it more lucrative to sell their gas contracts than to use them to generate power, experts say.

Though blackouts were averted, the incident prompted the ISO to push for a "last resort requirement" to compel generators to make electricity in an emergency. On Nov. 17, the Federal Energy Regulatory Commission granted the request. It won't solve the power problem. But there will be, as the ISO's lawyer wrote to FERC, "a greater opportunity to avoid load shedding that would place human life and property in jeopardy during a period of frigid cold."