|Graphic courtesy of the U.S. Energy Information Administration, available at http://www.eia.gov/todayinenergy/detail.cfm?id=10511.|
For the past several years, natural gas pipeline capacity in the U.S. has grown. According to EIA, overall investment in domestic natural gas pipeline capacity slowed in 2012, but the northeast United States was home to the majority of growth. Other than facilities for gathering, storing, and distributing natural gas, natural gas pipeline capacity expansions totaled $1.8 billion in capital expenditures in 2012, adding 4.5 billion cubic feet per day of new pipeline capacity and 367 miles of pipe.
Most projects placed in service in 2012 focused on removing constraints that blocked natural gas from the booming Marcellus shale gas from reaching markets in the Northeast. Northeastern pipe additions accounted for two-thirds of all new pipeline mileage placed service in 2012. These additions included large projects such as the Appalachian Gateway Project and the Sunrise Project, both of which are designed to transport natural gas from the Marcellus production zone to markets in the Northeast.
Despite this growth, the New England and New York markets still experience frequent pipeline constraints, meaning that inbound pipeline capacity is insufficient to transport enough gas to meet consumer demand many days per year. This results in not only volatile natural gas pricing in New England, but fundamentally higher prices for consumers. Because the price of natural gas in New England sets the price of electricity most of the time, the result is a double-whammy of high wholesale prices for both electricity and natural gas.
Further pipeline capacity expansions into New England could alleviate these bottlenecks, but it is unclear who will build the capacity or when it will occur. Until it does, New England will remain exposed to high and volatile prices for natural gas and electricity.