January 30, 2015

New Report: Natural Gas In The Electric Power Market

OLR Report 2014-R-0267 discusses the relationship between the natural gas and electricity markets in New England, particularly in light of constraints on the interstate pipeline system.

Over the past decade, technological advances in drilling techniques have brought substantially more gas to market in North America, resulting in larger quantities of natural gas and lower natural gas prices. At the same time, an increasing amount of New England’s electricity comes from natural gas. Many coal and oil plants have retired or indicated they will retire in the near future, and gas-powered power plants are expected to replace them. From 2009 to 2013, these factors lowered electricity prices in New England.

Interstate gas transmission lines, however, have not expanded in proportion to this increase in supply and demand. Gas-powered power plants generally purchase natural gas through intermittent (or interruptible) contracts, and transmission pipelines generally expand based on firm commitments. During episodes of extreme cold weather, when heating customers have high demand for natural gas, gas-powered plants risk losing access to their supply.

Several groups have proposed or taken various actions to address the issues arising from natural gas in the electricity market. Click here to read about those actions in the full report.