Polar Vortex II Brings Gas Curtailments, Price Spikes

Virginia’s climate has been setting record low temperatures in the past few days, and state newspapers have been full of stories about poor people shivering in the cold, traffic accidents caused by black ice, and the defects of Virginia Department of Transportation snow removal. But I have seen nothing about the impact of the deep freeze on business and industry. That’s not to say that no one has written about it, rather to say that the topic hasn’t surfaced in any of the newspapers and Internet news feeds that I peruse every day.

Here follows the untold story. Or at least part of the untold story. I publish here a communication from Aaron Ruby, spokesman for Dominion Energy and the Atlantic Coast Pipeline, who notes that the bitter cold caused a spike in natural gas prices and curtailment of service to major industrial customers. Bottom line: The disruptive Polar Vortex of 2014 was not a fluke. As the economy grows and natural gas supplies become even more constrained, we can expect more of the same in the future.

I fully acknowledge that Ruby’s remarks represent a corporate point of view and that there may be other ways to spin the economic repercussions of the recent cold wave. But, to be perfectly frank, given my other commitments, I don’t have time to flesh out a fully reported article. Instead, I post Ruby’s remarks with the idea of letting readers respond in the comments.

As our region recovers from the recent cold spell, I wanted to draw your attention to the significant challenges it posed for consumers who depend on natural gas for electricity, home heating and power for their businesses. The extreme cold and spikes in natural gas usage across the Mid-Atlantic over the last two weeks demonstrated in dramatic fashion the real and urgent need for the Atlantic Coast Pipeline.

Severely limited capacity on the pipelines serving Virginia and North Carolina forced some utilities to curtail service to major industrial customers and raised consumer prices to historic highs. The reason is simple: our region’s pipelines are too constrained, and we don’t have enough access to lower-cost supplies from the Appalachian region. In response to urgent requests from utilities, we proposed the Atlantic Coast Pipeline more than three years ago to relieve those constraints and bring these lower-cost supplies to consumers in Virginia and North Carolina. The Atlantic Coast Pipeline would significantly lower the risk of this kind of volatility in the future.

Virginia Natural Gas, which serves homes and businesses in the Hampton Roads region of Virginia, reported service interruptions to 11 major industrial customers over the last two weeks, some lasting for as long as 4 days. Piedmont Natural Gas, which serves homes and businesses in North Carolina, reported that it too interrupted service to several industrial customers. In fact, Piedmont alerted federal regulators this week that it urgently needs new infrastructure by the end of 2019 to serve customers’ growing needs.

Constraints on the Transco pipeline in Virginia and North Carolina also sent natural gas prices soaring from $3 per dekatherm in late December to an all-time record high of $175 at the end of last week. Those higher costs will ultimately be reflected in higher electric and natural gas bills for consumers. Dominion Energy Virginia relied on the Transco pipeline for about 75 percent of its natural gas supply during the cold spell, while public utilities in North Carolina depended on this single pipeline for 100 percent of the state’s supply. Transco is currently the only natural gas transmission pipeline serving all of North Carolina, leaving the state particularly vulnerable to shortages and price volatility.

In contrast, prices in the Appalachian region where the Atlantic Coast Pipeline would originate remained low, trading between $4 and $6 per dekatherm during the cold spell. The problem is we don’t have the pipeline infrastructure to deliver these lower-cost supplies to consumers in Virginia and North Carolina. While we’re still calculating the impact, having access to a lower-cost source would have saved consumers in our region hundreds of millions of dollars in fuel costs over just the last couple weeks.

We’ve said for a long time that the pipelines serving our region are stretched too thin and cannot handle the coldest winter days. Our economy isn’t going to grow if we have to curtail our industries whenever it gets cold, or if consumer prices skyrocket when our pipelines are overstrained.

New infrastructure is the only way to solve these challenges. The Atlantic Coast Pipeline will open up access to lower-cost supplies in Virginia and North Carolina – access we currently do not have – and it will make service more reliable for consumers, especially when they need it the most on the coldest winter days.

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25 responses to “Polar Vortex II Brings Gas Curtailments, Price Spikes

  1. “The disruptive Polar Vortex of 2014 was not a fluke. As the economy grows and natural gas supplies become even more constrained, we can expect more of the same in the future.”

    So, the more we burn fossil fuel like natural gas, the more carbon we will have, the more climate change and more polar vortexes?

    Can Dominion address that?

  2. Can Dominion address that?

    Yes, build more nukes!

  3. Before we start hyperventilating over the recent bout of cold weather and the overwhelming need for the ACP, remember that the big immediate gas price spikes were for the SPOT market. From what I can tell in general spot prices went from $2 to $3/million BTU to more than $6 per million BTU.That’s over about a week or so.
    I am not sure how percentage of the U.S. gas market is spot, but if it’s like coal, the answer is not much. Most of the gas used in the U.S. is sold on a futures, contract price that may see a much more modest rise if the cold weather continues. The pricing market for gas is already pretty sophisticated with a lots of protections built in. The spot market is the immediate price for gas bought to fill gaps temporarily.

    A few other things. If memory serves,contract gas prices (not spot) would have to be consistently about $7 or $8/billion BTU for Central Appalachian coal to become competitive again. I do not see that happening. And dramatic spikes in spot pricing due to a separate event such as a weather or earthquake can also see an equally dramatic DROP in spot prices.
    Jim, you claim that gas is so much less carbon emitting than coal. Many experts dispute that when you factor in pipeline leakage and tank leakage.

    • That’s a fair question to ask: What percentage of the gas is sold on a spot market basis versus a contract basis. Ruby argues that the price run-up is costing consumers hundreds of millions of dollars, which will be reflected in their rates. Hopefully, the public will get a full accounting before the SCC so we can find out how accurate that statement is.

      As for factoring in pipeline and tank leakage, that, too, is a semi-legitimate point. Such leakage does occur. But if you’re comparing gas to coal, you also have to take into account the “leakage” of methane from coal mines, which occurs on a large scale. As you know better than most, methane is a safety problem at nearly all underground mines, and the solution is to ventilate it out of the mine and into the atmosphere. If gas displaces coal, it also displaces the release of coal-mine methane. I don’t know if anyone has documented the scale of those releases and compared it to the leakage of gas pipelines, but we have to compare apples with apples, not oranges.

  4. Thanks for posting, Jim. Very interesting. Corporate points of view need to be heard, too. The efforts to silence some viewpoints is extremely unfortunate and counter-productive.



  5. I don’t have time to respond in detail to this post. This is certainly not the story that has circulated nationwide. The grid and gas supplies were highly reliable compared to 2013-2014, except for a few spot shortages.

    The temporary conditions noted in the story do not require the ACP to remedy. Amounts of capacity greater than what will be provided by the ACP are scheduled to be added to the Transco system in 2018, well in advance of the projected in-service date for the ACP.

    Connections by VNG, Piedmont, South Carolina, etc. could be made to this existing system at a far lower price than using the ACP. Even the short-term price spike noted in the story lasted just a few days compared to the billions extra ratepayers will pay for the ACP over 20 years.

    About 10.7 Bcf/d of new pipelines are scheduled to be added in the West Virginia/Western PA portion of the Appalachian Basin in the next few years (including the ACP and MVP). This will result in 50% more pipeline capacity than the rate of gas production in that zone, at least through 2022, according to industry analysts.

    This will cause gas prices in the area (including Dominion South) to equalize with other production zones, as has always happened in the gas business. Adding the high cost of transportation associated with new pipelines will result in higher priced gas to be delivered all year round from this area.

    The story above feeds the misleading narrative that has been widely spread about these new pipelines (being necessary and cheaper), but the facts don’t match the current state of demand or the regional pipeline system that will exist in 2018 (Columbia Gas is also adding 1.3 Bcf/d of capacity to the region in 2018).

    We don’t need scare tactics to interfere will level-headed evaluations of our energy systems. Such discussions are already over-politicized and rife with partial truths spread by special interests. It was nice to see that FERC shot down the Rick Perry/DOE attempt to scare people into doling out subsidies to coal and nuclear plants that would have upset the current wholesale power market mechanism.

  6. re: ” We don’t need scare tactics to interfere will level-headed evaluations of our energy systems. Such discussions are already over-politicized and rife with partial truths spread by special interests. ”

    I totally agree…

    By the way – THIS electricity source DOES work fine in Polar Vortexes:

    “Massive solar farm proposed in Spotsylvania”

    ” Utah-based Sustainable Power Group is proposing a 3,500-acre solar farm in western Spotsylvania”


    This MAY be one of the biggest solar farms in the state to date. It is several times bigger than the Amazon site.. and the sites in Orange and Louisa.

    This site – by the way – is sited on land that was massively clear-cut a couple years back and now looks like a wasteland.

    And as large as it is – it’s still much smaller than the amount of land in Spotsylvania that is used to spread sludge from NoVa.

    but heck yes… solar works just fine with Solar Vortexes and actually is even better than Nukes in ice storms where Micro Grids are better!

  7. Williams Company, the owner of Transco, projects that 1.6 Bcf/d of natural gas demand will be removed from Virginia, North and South Carolina between now and 2022 due to the solar projects planned for the region.

    This does not bode too well for a 1.5 Bcf/d pipeline (the ACP) that is planned to serve that same region.

  8. Using Natural gas to replace coal as opposed to using it in tandem with solar -using gas when solar is not available – but using solar INSTEAD of gas when solar is available…

    is an egregious misuse of resources.. a waste… and wanton use of fossil fuels when you could be using solar.

    If the idea behind the pipeline is to replace coal with gas – it’s a terrible idea.

  9. The story I heard was there was so much nat gas in storage, prices were depressed , and although the recent cold spell was a record breaker cold+duration , the nat gas prices did not spike as much as might have been expected for the severity of the cold spike. Suggesting a fundamentally weak future gas price outlook.

    But that is not so say gas infrastructure is not needed. The past over-reliance on coal already insured that.

    • There has been 121 Bcf/d of new pipeline capacity added in the last 10 years, Average US gas usage 75 Bcf/d, 93 Bcf/d at peak in January 2017. We do not have a shortage of natural gas infrastructure. A few locations here or there maybe, but we have way overbuilt our pipeline capacity and it is getting worse. The Dominion South zone will get 10.7 Bcf/d of new pipelines in the next year or two if all planned pipelines get built. That is 14% of total US use and 50% more than we will have gas to fill them over the next 5 years.

      FERC has to start evaluating the need for new projects. Pipeline developers have publicly admitted that they always overbuild. There needs to be some common sense applied here. Somebody will have to pay for unnecessary facilities and it is usually the private citizen. They overbuilt LNG import facilities and they will overbuild LNG export facilities too. Oil & gas developers get into the gold rush mentality and get far too carried away.

  10. Natural gas is a versatile and indispensable fuel and even more so in abundance.

    But I still wonder why natural gas made available to western RoVa for economic development is not a priority if the premise is that natural gas will attract industry and jobs…

    Ditto with electricity.. why not build gas plants nearer to where the gas is instead of moving it all across the state and down to eastern NC and SC?

    Imagine the dilemma the opponents and NIMBYs might have if the owners the pipeline promised them access to gas for local use, gas plants and as an economic development incentive for industry?

    Why would they want to move that gas all the way across the state – bypassing all those places that could benefit from it also?

    My guess is that the gas will fetch a much higher price in denser places than rural places… but heck . just offering access to the gas to those localities would be a killer PR strategy…

  11. Larry,
    I don’t see the benefit of natural gas for economic development in the same way that you do. People are stuck on that concept from the 20th century. Very few new businesses need natural gas. Only those that use it as a feedstock truly require it.

    What other businesses need is an affordable source of energy for space heating and cooling, water heating and maybe some moderate process heat. Uncreative economic developers default to natural gas and moan about not having access to it. There are a variety of ways of providing what is needed in ways that don’t have the increasing cost trajectory that natural gas does. Any business park that could offer a fixed energy cost scenario and higher reliability (maybe with some local generation, and storage in an islanded microgrid), for example, would be very attractive to new innovative businesses looking for a cost advantage over competitors.

    It’s time we embraced the 21st century.

    • Dead wrong, Tom. Many businesses use natural gas in their process and not just as a feed stock. Now you are letting your agenda crowd out the facts. Case in point, Newport News Shipbuilding and its major need for steam. It recently converted its steam plant from oil to gas, saving millions and meeting EPA boiler MACT, but until the steam-powered catapults on carriers are all retired from the fleet, the steam plant and steam lines will be there, and the steam also has other uses besides just heat and hot water.

      • If true – the farther you transport the gas – the more expensive it will be and logically it will be the least expensive near the source and thus communities along a pipeline.. it ought to be less expensive the shorter distance the gas is transported.

        That ought to provide an advantage to these places on a pipeline closer to where the sources are.

        I’m not seeing any kinds of real numbers in the debate.. it’s pretty much a generic “logic” argument that assumes there is industry that wants the gas .. and wants it at locations where the gas is transported long distances . Never seen an argument from Newport News about the need for more gas – which if Tom’s argument is correct will be far more expensive than what they are using now…

        I think it is easy to make the argument that, of course, someone will want the gas – and take for granted it’s more gas at the same price now… but someone has to pay for the pipeline – and how much will that affect the price of that gas and who is going to want it if it is substantially higher in price than the current price of gas?

        Finally, if gas actually IS scarce … it OUGHT to be costing more and more right now.. The price of the gas is going to be affected by supply and demand….

        So.. enough blather.. .. I’m not seeing numbers.. just generic narratives without numbers.. for gas … nor industry demand… it’s just basically an unfounded claim.

        • The shipyard has been a part of the pro-pipeline coalition for years and their (now former) lobbyist has been on this blog talking about it as well. 🙂 If you want all the heavy industry located in the states that have the gas, fine, Texas and Oklahoma and now Pennsylvania and Ohio win…and Virginia loses. We need a steady supply here, delivered by pipeline. Now, that doesn’t mean I want Dominion to be able to charge a monopoly price for ACP gas, and on that point Tom and I might agree.

      • Steve,

        The example you mention is a high-heat process use rather than the moderate-heat ones that I was describing. I agree that the combined heat and power applications that you describe are a good application of fossil fuel because they increase the efficiency of extracting energy from the fuel. I have been promoting applications similar to what you describe for decades.

        What I was describing in my comment above was the more typical needs in business parks, etc. that are the most frequent targets for economic developers.

  12. “So, the more we burn fossil fuel like natural gas, the more carbon we will have, the more climate change and more polar vortexes?” To which Jim answered, “as Dominion has used natural gas to replace coal, it is emitting less carbon dioxide.”

    A reasonable response, if true. It takes a given amount of heat to make the steam to turn the turbine to spin the generator. It takes the SAME amount of heat, measured in calories or therms, whether its source is burning natural gas or coal or oil or firewood or nuclear fission.

    Now, if the source of that heat is oxidizing carbon, it makes no difference whether the carbon is obtained as a living or “fossil” carbohydrate fuel. You get the identical amount of heat per pound of carbon. No more; no less. And the byproduct of this combustion is the identical amount of oxidized carbon, or CO2. No more; no less.

    What then is the difference between burning coal and burning natural gas, from a carbon emissions point of view? These: natural gas is mostly CH4, or methane, and it so happens that methane is hundreds of times worse as a greenhouse gas than CO2, so any leaks of methane around the well where it’s extracted, or through adjacent seams opened by fracking, and any leaks from gas pipeline compressor stations etc., are disproportionately harmful. Methane also leaks from strip-mined coal seams and coal mines, and from coal piles and carloads of crushed coal, and that’s equally harmful. Which has the worse track record for leaking methane, gas or coal? They’re still arguing over that one, but suffice it, both have poor credentials.

    So Jim, I say you are wrong. Natural gas emits the same CO2 when burned, and comparable amounts of methane from fuel handling. Carbon is carbon. Granted, coal is clearly worse than gas as to particulate emissions and sulfur compounds and residual ash, and in terms of surface impact from strip mining. Granted there are other non- carb compounds in both coal and gas that contribute a little of the total heat when burned. But don’t choose natural gas because it “emits less carbon dioxide” than coal, per unit of energy derived from burning it. Choose natural gas for the other reasons.

    If your goal is less carbon dioxide, you MUST choose energy that’s NOT from carbon oxidization. That means solar, wind, geothermal, and nuclear. Or, energy obtained indirectly from one of these, like solar, but stored and time-shifted to a more efficient time for consumption, through batteries or pumped storage.

    • Acbar – I’m trying to reconcile what you are saying about burning different fuels with this:

      ” How much carbon dioxide is produced when different fuels are burned?”


    • Acbar, I state that natural gas emits less CO2 from combustion because that seems to be the received wisdom. I don’t pretend to understand the chemistry. But why would so many people be making the claim if it weren’t true? I’m referring especially to environmentalists who, rather than make the argument you’re making, advance the case that CO2 emissions from natural gas are no better than coal if you include the leaking from pipelines and storage tanks.

      I’m willing to stand corrected.

      • Nat Gas plants make less CO2 than coal because coal plants have low efficiency about 30% . Nat Gas is normally stated to be 2x less CO2 than coal , but potentially even better. Coal you get many add-on issues: Particulates, SOx, NOx, mercury, etc. some of which could play a role in ocean acidification and ice melting etc.

        We are hearing on the blog very often from the anti-nat gas crowd that methane leaks to the atmosphere make nat gas by far the worst fossil fuel. This is disinformation in hopes of convincing folks to hate nat gas. Methane is not good but it is not accepted that that makes nat gas the worst fossil fuel. Anyone who has used a gas stove or Bunsen burner knows how clean the flame is. It is by far the cleanest fossil fuel as far as I know.

  13. Larry,

    Gas from the ACP will not benefit any local development when it is considerably more expensive than gas available from existing sources. Paying more for something does not increase jobs or business profitability.

    Somehow Virginians have to understand that the economic benefit story about the ACP does not hold up to scrutiny. The studies that came up with the number did not include the cost of using the pipeline. Added pipelines will reduce the price advantage at Dominion South, it always happens that way. When your supply zone is increasing in price and you are transporting gas in an expensive pipeline, you are not able to lower the cost of energy or create more jobs as a result. It’s basic math.

    • Hey Tom – proponents are saying that some places don’t have gas at all at any price and that having gas even at a higher price will benefit them.

      the other argument is that in areas that already have gas but supplies are limited that – not having more gas even more expensive stunts growth.

      I’m not arguing against your logic or buying theirs… in large part because I simply do not know the reality of gas prices… or how they fluctuate, etc.

      are we talking about a few pennies price difference per therm or dollars. Is it a minor cost to a business to located where gas is more expensive or is it a game changer that drives most industry to places where gas is much cheaper?

      etc, etc.. my ignorance – but also that kind of specificity and granularity is not in the debate – from either proponents nor opponents.. as far as i can tell.

      And again – if that is true -then why in the world would Dom locate a gas generation plant far away from the source of the gas and pay to transport it a long way to a plant rather than build that plant much closer to the source?

      A LOT of stuff I just don’t know.. but also don’t see it being debated by others either.

  14. There are two issues here. Let’s take Dominion building a power plant in Virginia. By the end of 2018, according to industry experts (Bloomberg New Energy Finance and others), the current price advantage at Dominion South in West Virginia will largely disappear because many new pipelines will be in service (before the ACP and MVP) to get all of the gas to market. That means differences in the delivered price of gas will be largely due to differences in the cost of pipeline transportation.

    Connecting the new power plant to an existing pipeline rather than the ACP would save ratepayers billions of dollars over the 20-year year term of the transportation contracts.

    Getting more gas for business development in Hampton Roads for example, would be cheaper if VNG connected to an existing pipeline (Transco) than it would be if the gas was transported by the ACP. That would save the Virginia Natural Gas customers about $1 billion over 20 years compared to using the ACP.

    In a pipeline like the ACP, the charge is the same per unit volume of gas to ship gas to Virginia as it is to ship gas to North Carolina. It is not determined by how far gas travels on the pipe, like a toll-road for example.

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