Declining demand for residual fuel oil?

Global demand for residual fuel oil is expected to decline, according to the U.S. Energy Information Administration.

A Maine State Ferry Service boat near Vinalhaven, Maine.

Residual fuel oil is basically what's left after gasoline and other lighter hydrocarbons are distilled from crude oil.  Industry recognizes several grades of residual fuel oil, including No. 5 (used in steam-powered vessels in government service and inshore powerplants) and No. 6 (used for the production of electric power, space heating, vessel bunkering, and various industrial purposes.) 

Because residual fuel oil is composed of the residue left after distillation, it can contain large amounts of contaminants such as sulfur, nitrogen, or heavy metals.  As environmental regulations limit emissions of pollution, residual fuel oil can become less attractive (or more expensive) as a fuel source for electric power generation or marine transportation.

The EIA notes declining global demand for residual fuel oil since the mid-1980s.  In a brief report, EIA projects that the electric power and heating sectors will likely be responsible for continuedlarge reductions in residual fuel oil demand.

EIA also points to tighter international emissions regulations for the marine transport sector.  Rules under Annex VI of the International Maritime Organization through the International Convention of Pollution from Ships (MARPOL, or Marine Pollution) require global controls on emissions of sulfur and nitrogen oxides.  While residual fuel oil with a sulfur level no more than 3.5% can be used to meet the MARPOL requirements throughout most of the oceans, stricter limits apply to designated emission control areas like the North Sea, the Baltic Sea, and coastal areas in North America and the Caribbean Sea.  These strict limits effectively require 0.1% sulfur content residual fuel oil or lower in the covered emission control areas.  EIA suggests that strategies for MARPOL compliance will likely include low-sulfur fuels (marine gasoil or intermediate fuel oil, or even liquefied natural gas or LNG), or using scrubbers or other technology to remove sulfur post-combustion from the exhaust.

At the same time, EIA notes that some developing countries' power sectors may rely on residual fuel oil as a "transitional fuel" if they are "more sensitive to price and less sensitive to environmental and health implications."

Northern Pass files with NH SEC

The developer of the Northern Pass Transmission Project, a proposed high-voltage transmission line from Canada into New Hampshire, filed a formal application to New Hampshire regulators this week.

First proposed in 2009, the Northern Pass project would include about 190 miles of new direct current transmission lines and an AC-DC converter station.  Collectively, the project would be capable of importing over 1,000 megawatts of power from Canada into the New England electric grid.  Its formal sponsors are two companies affiliated under the Eversource family: Northern Pass Transmission LLC and Public Service Company of New Hampshire d/b/a Eversource Energy.

Early versions of proposal drew criticism and controversy over issues including siting, visual impacts, the potential use of eminent domain, and impacts to domestic renewable energy production.  After a series of public information meetings and other dialogue, Eversource released a revised route and plan in August 2015.

On October 19, Eversource announced that it had filed a formal application to the New Hampshire Site Evaluation Committee.  The Northern Pass Transmission application to the SEC is available on the project's website.  It describes a project cost estimate of $1.6 billion, and a capacity of 1,090 megawatts. 

The SEC was established by the state legislature for the review, approval, monitoring and enforcement of compliance in the planning, siting, construction and operation of energy facilities.  It includes members from the Public Utilities Commission, cabinet level commissioners, and two members of the public.  The SEC has jurisdiction to review applications for siting and construction of large-scale energy facilities and to issue a Certificate of Site and Facility enabling a project's development.  The process before the SEC is likely to play out through 2016.

Massachusetts nuclear power plant to close

The Pilgrim Nuclear Power Station, the sole nuclear power plant in Massachusetts, will close by June 2019, according to its owner Entergy Corp.

Entergy is an integrated energy company headquartered in New Orleans, Louisiana.  Entergy is one of the leading nuclear generators in the U.S., with nearly 10,000 megawatts in nuclear generating capacity as well as about 20,000 megawatts of other electric generating capacity, as well as serving retail utility customers in Arkansas, Louisiana, Mississippi and Texas.

The company's Entergy Wholesale Commodities business owns and operates five nuclear power units located in the northern United States, and sells electricity produced by those plants to wholesale customers.  Those units include Pilgrim Station's Unit 1, a boiling water reactor with a maximum dependable capacity of 688 megawatts.  The Pilgrim Station unit was installed in 1972, and is currently licensed through June 8, 2032.

Today Entergy announced plans to close Pilgrim Station by June 2019.  In its press release, Entergy cites "poor market conditions, reduced revenues and increased operational costs."  In Entergy's view, low current and forecast wholesale energy prices "brought about by record low natural gas prices, driven by shale gas production" hurt Pilgrim's revenues; wholesale energy market design flaws mean merchant nuclear power plants are inadequately compensated, while "unfavorable state energy proposals ... subsidize renewable energy resources at the expense of Pilgrim and other plants."  Entergy also cites "increased operational costs and enhanced Nuclear Regulatory Commission oversight" following a recent NRC decision to give Pilgrim a higher level of scrutiny.

The announcement resembles a 2013 decision by Entergy to close the Vermont Yankee Nuclear Power Station, a plant similar in vintage to Pilgrim Station.  Entergy announced Vermont Yankee's closure in 2013; that plant ceased commercial operation at the end of 2014, and Vermont Yankee's decommissioning is now underway.  In announcing the Vermont Yankee closure, Entergy pointed to financial factors including a "natural gas market that has undergone a transformational shift in supply due to the impacts of shale gas, resulting in sustained low natural gas prices and wholesale energy prices", high plant cost structures, and wholesale market design flaws.

According to Entergy, it has notified regional electric grid operator ISO New England Inc. of its intent to exit the region's capacity market.  Entergy said the exact timing of plant shutdown will be decided in the first half of 2016.

Auction set for NJ offshore wind sites

The U.S. government has scheduled an auction for the rights to lease two areas of federal ocean space off New Jersey for offshore wind energy development.  The auction, to be held November 9, 2015, will be the fifth competitive lease sale for renewable energy on the outer continental shelf.

Under the Outer Continental Shelf Lands Act, the Department of the Interior has responsibility for managing use and development of the federally controlled outer continental shelf and the waters above it.  The Bureau of Ocean Energy Management exercises key functions in support of this role, managing resource evaluation, planning, and site leasing for energy activities ranging from oil and natural gas exploration and production to hydrokinetic, offshore wind, and other renewable ocean energy projects.

Since early in the Obama administration, BOEM has worked to offer leases to federal ocean sites for offshore wind development or related activities.  To date, BOEM has awarded seven offshore wind site leases through competitive lease sales, plus two more commercial wind leases offshore New Jersey awarded through earlier interim policies.  BOEM's competitive processes have generated over $14.5 million in high bids for over 700,000 acres in federal waters off states including Massachusetts, Maryland, Virginia, and Rhode Island.

Since at least 2009, BOEM has been involved in efforts to lease sites off New Jersey for offshore wind development, including multiple task force meetings, a 2011 Call for Information and Nominations – Commercial Leasing for Wind Power on the Outer Continental Shelf Offshore New Jersey, and a 2014 Proposed Sale Notice.  That notice described a 343,833-acre Wind Energy Area split in two parts, known for leasing as OCS-A 0498 and OCS-A 0499:

BOEM has now announced that it will publish a Final Sale Notice setting a commercial lease sale for November 9, 2015, for the Wind Energy Area offshore New Jersey.  Similar in format to other recent BOEM offshore wind site auctions, the New Jersey sale will include consideration of both monetary factors (the bid) and nonmonetary factors (i.e., whether a bidder has obtained a Power Purchase Agreement or New Jersey Offshore Renewable Energy Certificate award).

No offshore wind projects are in commercial operation in the U.S., although Deepwater Wind is currently constructing its Block Island Wind Farm in state waters offshore Rhode Island.

Propane inventory in US sets new record

As the U.S. prepares for another winter, government records show stockpiles of propane have reached record levels.  What's in store for propane markets?

Propane is a hydrocarbon gas liquid used mostly for space heating and as a feedstock for other chemicals like ethylene and propylene, as well as for drying agricultural crops.   Natural gas processing plants and petroleum refineries are the two largest sources of propane. 

The U.S. Energy Information Administration has collected weekly propane inventory data for 22 years.  According to its most recent report, U.S. inventories of propane and propylene reached 97.7 million barrels as of September 11.  EIA describes this as the highest level of propane inventory on record.

What explains the buildup of propane in storage?  Record high propane inventories are partly due to seasonal dynamics in supply and demand.  Demand for propane for heating and agricultural uses is highly seasonal, while demand for propane as a chemical feedstock lacks strong seasonality.  Over recent years, propane and propylene stocks are typically drawn down during the winter heating and agricultural drying season (October to March), and then rebuild from early April through September. 

This year, EIA data shows inventories began increasing in mid-February.  EIA notes that domestic consumption is relatively flat, but found increases in propane production.  In particular, EIA's latest data shows that natural gas processing plants are producing a greater share of propane than in previous years (rising from 62% in 2008 to 76% in 2014), while propane production at refineries has remained relatively constant.

Maine considers net metering alternative

The Maine Office of the Public Advocate has proposed a new mechanism to encourage the development of solar energy capacity in the state.

Under Maine’s existing law, customers with onsite generation may choose “net energy billing” treatment. Similar to “net metering” policies in other states, Maine’s program gives eligible consumers credit for the power they send back to the grid from their onsite generation. Presently, the value of that credit varies with the applicable retail electricity rate.

But according to the Public Advocate, Maine’s version of net metering raises concerns including net metering customers’ uncertainty over the future value of power, the potential for cost-shifting to non-net metered customers, and a lack of transparency.

In its white paper, “A Ratepayer Focused Strategy for Distributed Solar in Maine”, the Office of the Public Advocate offers an alternative to Maine’s existing net metering program. It envisions policies to support development of two types of solar energy projects in Maine: customer-sited systems and wholesale systems.

For customer-sited systems, the white paper proposes a “Solar Standard Buyer” to serve as an aggregator of the attributes solar energy can provide. Customers would enter into a Customer-sited Solar Contract or CSC, a fixed-price, 20-year contract with the solar aggregator. As under Maine’s existing net metering structure, the “payment” to customers would be based on a per kWh rate that would appear as a monthly bill credit on the customer’s bill. Under the Public Advocate’s vision, the level of compensation would be capped at $0.20/kWh.

As more solar capacity comes online in Maine, the Public Advocate proposes incremental “step downs” in the CSC contract price paid to solar customers. Both the payments to customers under a CSC and the revenues received through this aggregation and sale would be credited to all customers through transmission and distribution utilities’ existing stranded cost mechanisms.

For wholesale systems between 1 megawatt and 5 megawatts in scale, the white paper envisions that the Commission would solicit competitive bids, with the ultimate purchaser being the Solar Standard Buyer. The white paper notes an expectation that economies of scale will enable these larger, utility-side solar projects to reduce the price per kilowatt-hour to Maine’s non-participating ratepayers. It proposes to compensate developers of wholesale systems at a fixed rate, with contracts procured by the state’s utilities through bi-annual competitive processes.

The Public Advocate suggests that its proposal is consistent with recent analysis of the value of solar energy in Maine. Pursuant to the 2014 “Act to Support Solar Energy Development in Maine”, the Maine Public Utilities Commission developed a methodology for determining the value of distributed solar energy generation in the state. Its Maine Distributed Solar Valuation Study, released this spring, provided a methodology for estimating the cost and benefits of solar, values for each cost and benefit, and options to encourage solar adoption within Maine’s existing utility framework.

According to the Public Advocate’s white paper, its proposal could drive up to 300 MW of new solar capacity in Maine by 2025.  It has been characterized as an addition to net metering, not a replacement.  But the Maine Public Utilities Commission continues to evaluate Maine’s solar energy policies.  Its process could have outcomes ranging from continuation of Maine's net energy billing programs to the creation of some new mechanism to address solar and distributed generation's integration into the grid.

North Carolina offshore wind advances

Federal efforts to lease ocean sites off the North Carolina coast for offshore wind development advanced last week, when the Bureau of Ocean Energy Management issued a report finding that there would be no significant environmental or socioeconomic impacts from issuing wind energy leases in three specific areas.  The determination brings BOEM one step closer to auctioning off leasing rights off North Carolina for offshore wind development.

The Bureau of Ocean Energy Management is part of the U.S. Department of the Interior.  BOEM performs key duties under the Outer Continental Shelf Lands Act, including resource evaluation, planning, and site leasing.  In furtherance of President Obama’s Climate Action Plan, BOEM has auctioned off the rights to lease sites in federal waters for offshore wind development off states including Massachusetts, Maryland, Virginia, and Rhode Island.  Altogether, BOEM has awarded nine commercial wind leases.  Seven of these were awarded through its competitive lease sale process, generating over $14.5 million in high bids for over 700,000 acres in federal waters. 

Federal law prescribes the process BOEM must undertake to lease sites for offshore wind development.  Under the National Environmental Policy Act (NEPA), BOEM must evaluate the environmental and socioeconomic impacts of proposed actions.

For the proposed leasing off North Carolina, in January 2015 BOEM published its Environmental Assessment (EA) of the impacts of granting commercial wind leases and allowing of site characterization and assessment activities on the Atlantic Outer Continental Shelf.  On September 17, BOEM issued a revised Environmental Assessment.  That EA found there would be no significant environmental or socioeconomic impacts from issuing wind energy leases and allowing site characterization activities.  This "Finding of No Significant Impact", or FONSI, enables BOEM to proceed to the next step in the leasing process.

That next step will occur in October, when BOEM will convene a public meeting of the North Carolina Renewable Energy Task Force.  After considering the input from the Task Force, BOEM will publish a “Proposed Sale Notice” in the Federal Register, which will include a 60-day public comment period. That notice would be followed by a lease auction, likely similar to those held for sites off other states.

In addition to its proposed North Carolina activity, BOEM expects to hold a competitive lease sale for sites offshore New Jersey later this year.