Virtual Pipelines: Short-Term Solution or Long-Term Opportunity?
Despite the push to bring more gas delivery capacity to the Northeast in recent years, regulatory hurdles continue to limit the gas supply to that region. In Jeopardy For ACP, NESE, Nexus and LNG Exports , we highlighted the litigation delaying the pipeline projects aiming to alleviate the supply limits to the region. These conditions have sparked interest in non-pipeline solutions among utilities and industrial customers. As a result, there has been growth in new industries, such as virtual pipelines and modular or small scale liquefied natural gas (LNG) facilities that allow for the delivery of natural gas without the delays associated with the construction of a new pipeline. The Northeast, in particular, has benefited from the implementation of these networks of natural gas liquefaction, compression, and trucking and shipping technologies. But are these alternatives simply a short-term patch in the energy mix or a long-term player that has just entered the field?
Giving Alternatives Some Serious Consideration
Natural gas utilities, including Dominion, Con Edison, National Grid, Enbridge Gas, FortisBC, and other natural gas utilities are being encouraged to explore non-pipeline solutions as an option to meet customer needs and provide reliable services. Some gas utilities are exploring such solutions in earnest. In 2018, ConEdison solicited bids for non-pipeline solutions that addressed both demand and supply-side constraints. The technologies selected by ConEdison, as well as the New York Public Service Commission’s response to their implementation, and its implications for ratepayers, may be an indicator of what’s to come throughout the Northeast. The demand-side solutions proposed included improved energy efficiency and thermal storage, while supply-side solutions were largely focused on LNG and compressed natural gas technologies, such as LNG peaking storage, virtual pipelines and port terminals.
Virtual pipelines involve the use of small-scale natural gas processing in combination with specialty trucks and storage tanks capable of transporting and regasifying LNG. Mobile options include temporary trailer or skid-mounted tanks and vaporizers for easy deployment, while fixed storage tanks are a long-term solution for those companies that see fit to make the investment. This network of facilities provides an alternative to piped natural gas as well as fuel oil for companies aiming to generate electricity or fuel industrial facilities. The network can serve as a primary energy source or redundancy in areas where alternatives are necessary during heating season.
Upon reviewing Con Edison’s request to receive its portfolio of selected non-pipeline solutions, the NYPSC in February approved the $226 million costs associated with demand-side solutions but not the LNG-based supply-side solutions. Instead, the cost of implementing LNG trucking, or a virtual pipeline, selected by Con Edison as part of its portfolio, was to “be recovered conventionally under the company’s rate plan or through the Gas Adjustment Clause mechanism, as appropriate and defined by regulations” and subject to a rate proceeding.
As of March 15, 2019, Con Edison stopped accepting applications for new natural gas connections in most of the Westchester service area in an effort to align demand with available supply. Similarly, National Grid, a utility serving New York and New England, has since also sought proposals for non-pipeline solutions while most recently stating that it may not be able to support new customers in the New York area unless the Northeast Supply Enhancement Project comes to fruition. The project’s Section 401 Clean Water Act applications were denied by both New York and New Jersey environmental agencies but Williams believes it can be in service by the 2020/2021 winter heating season.
Regulation and Execution of Non-Pipeline Solutions
Unlike natural gas pipelines, virtual pipelines are not subject to the FERC’s jurisdiction but they are not wholly unregulated. Small-scale LNG facilities or transportation by truck may be subject to the Pipeline Hazardous Materials Safety Administration (PHMSA) and any intrastate pipelines used in connection with such solutions may be subject to a state public utility commission or environmental regulator. However, PHMSA involvement is limited to enforcing safety measures rather than permitting or siting the construction of any facilities. That has not prevented the Sierra Club from pursuing these virtual pipelines as FERC jurisdictional liquefaction facilities like the Gibbstown Marine Terminal.
Some natural gas utilities, such as Rev LNG’s and Dominion Energy’s NiChe LNG, LLC, have moved ahead of the curve by investing in non-pipeline solutions. For example, if NiChe LNG’s efforts to construct the Towanda Liquefaction and Storage Facility is any indicator, virtual pipeline facilities are reviewed more expeditiously than their interstate counterparts. Construction of the facility located in Bradford County, Pennsylvania began in 2019 and the first liquefaction is expected by the end of this year. Although the facility is simpler than the multi-train facilities reviewed by FERC, approval and construction within one year has been almost unheard of at the FERC since 2012.
With limited federal involvement, relatively quick development and established market demand, it appears that non-pipeline solutions may become the way of the future.
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