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The New England Restructuring Roundtable Gas Pricing Dynamics Affecting

Richard L. Levitan, rll@levitan.com June 15, 2012. The New England Restructuring Roundtable Gas Pricing Dynamics Affecting Power Markets and Resource Adequacy in New England. Primary Issues & Concerns (next 3-5 Years). Supply push in PJM / NYISO  demand pull in New England

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The New England Restructuring Roundtable Gas Pricing Dynamics Affecting

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  1. Richard L. Levitan, rll@levitan.com June 15, 2012 The New England Restructuring Roundtable Gas Pricing Dynamics Affecting Power Markets and Resource Adequacy in New England

  2. Primary Issues & Concerns (next 3-5 Years) • Supply push in PJM / NYISO  demand pull in New England • Slack deliverability during non-heating season insufficient to support new entry • New flow patterns raise questions about economic obsolescence • Anticipated retirement of many RFO / dual fuel steam units, coal • Basis benefits will be indirect and may not materialize in the peak heating season • Destination-flexible LNG cargoes jeopardize fuel adequacy around Boston • Financial / regulatory support for new gas infrastructure Who pays?

  3. Commodity prices remain weak and stable

  4. Gas Price and New England Energy Price

  5. Blow out in historical parity relationship

  6. Marcellus Production Forecast Source: Penn State University

  7. Wet and dry shale gas production Major Dry Gas Production Area Wet Gas Dry Gas Major Wet Gas Production Area Sources: EIA, Pennsylvania State University Marcellus Center, Dominion Resources, Pennsylvania Department of Conservation and Natural Resources

  8. Gas Basis to New England Reflects Congestion

  9. Marcellus-related planned projects Source: NGA

  10. Seasonal Basis to New York and New England

  11. Estimated P/L slack deliverability, except during winter 2.5 Algonquin Tennessee 2 1.5 Daily Deliveries in NE (Millions of Dth/d) 1 0.5 0 1/1/11 3/1/11 5/1/11 7/1/11 9/1/11 1/1/12 3/1/12 9/1/07 1/1/08 3/1/08 5/1/08 7/1/08 9/1/08 1/1/09 3/1/09 5/1/09 7/1/09 9/1/09 1/1/10 3/1/10 5/1/10 7/1/10 9/1/10 11/1/11 11/1/10 11/1/07 11/1/08 11/1/09

  12. Gas Price Dynamics on DA / RT Prices E&P outlook likely to sustain downward pressure on prices Generators bid value  AGT Citygates, TN-Z6 Existing paradigm does not capture M-T-M benefits FCA prices do not support new gas infrastructure Attrition effects by FCA #8 Deliverability constraints likely to materialize Prices will reflect seasonal basis, ULSD Who bears the transportation freight?

  13. Gas Price Dynamics on Reliability • Decline in LNG Imports to Canaport and Distrigas • Concerns over adequate fuel to serve Mystic 8/9 • Gas flow displacement effects from western and Atlantic Cdn • Coal and RFO steam unit retirements • Posturing RFO steam units in the winter appear key to reliability • ULSD oil tankage constraints and refill logistics • No step-up to firm transportation How does the stakeholder process evolve?

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