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This special report looks at the capabilities of the national natural gas pipeline network in 2000 and provides an assessment of the current levels of available capacity to transport supplies from production areas to markets throughout the United States during the upcoming heating season. It also examines how completion of currently planned expansion projects and proposed new pipelines would affect the network.

During the summer and fall of 2000 natural gas prices reached record highs for a nonheating season period. The dramatic rise in prices resulted from an upsurge in natural gas demand, mainly from electric generation needs during a warmer-than-usual spring and summer. The increased demand has occurred while domestic production levels have continued to decrease over the past several years. [1] Low natural gas prices during 1998 and 1999 dampened exploration and development efforts and caused some lower producing wells to be shut in or abandoned. Natural gas pipeline capacity, on the other hand, has grown with end-use demand, and as sources of new supply have developed, new pipelines have been built to bring this gas to markets. [2] As the next heating season (November 1, 2000 through March 31, 2001) approaches, however, the ongoing question remains as to whether there is sufficient pipeline capacity to meet most possible contingencies. Last winter was warmer than normal on average, so a return to normal weather would add to system demand.

Overview

Generally speaking, as the nation enters the 2000-2001 heating season available natural gas pipeline capacity on the national grid appears adequate to meet most peak-day demands, assuming an average winter. [3] However, there are some points on the system where capacity-constraint and bottleneck problems could arise during severe weather periods, as incremental demand increases beyond local capabilities. Each of the several regions of the nation (Figure SR1) contains some area(s) where the potential exists for mainline transmission segments to experience capacity shortfalls during periods of extremely heavy demand. For example, on a regional basis:

* The Northeast Region has several local areas where deliverability problems could increase. In the New York City area, for instance, capacity constraint problems have occurred in recent years during unusual weather periods. Additionally, in the Boston, Massachusetts area, where pipeline capacity is already heavily utilized, demand has been growing and is expected to grow rapidly over the next several years, especially from developers of gas-fired power generation plants. Also, the Leidy area of north central Pennsylvania, where a number of major interstate natural gas pipelines interconnect, has the potential to become a constraint point for pipeline gas flowing to the East Coast, and particularly into the northern New Jersey, New York City area.

* Portions of the Western Region, notably the California market, are experiencing growing demand for natural gas for electrical generation, especially during very warm summer weather periods. Utilization levels on the major transmission pipelines serving the State have been well above 90 percent in recent months and could reach their limit if demand levels continue to increase. Service needs in the southern Nevada area continue to remain at a very high level, suggesting the need for system expansion in that area as well.

* The Central Region has a problem of excess production and limited receipt or exit capacity. Expanding coal-bed methane production in the region has outpaced the development of longhaul capacity to carry the gas to end-use markets. New gathering and header systems have been built this past year to move the gas from the field to the mainline, but not enough matching interstate pipeline capacity has been installed. Only in the past several months have proposals been made to expand the area's interstate systems. Capacity constraint problems exiting the production areas have resulted in the region having the lowest average natural gas spot prices in the nation.

* In the Midwest Region, completion of the Alliance Pipeline (1,325 million cubic feet per day) in the last quarter of 2000 could lead to some short-term excess capacity during the upcoming heating season. All of the new interstate gas transmission capacity that was to have been completed in 2000 and would transport a large portion of the new supplies to the Northeast Region will not be in place when Alliance is placed in service. As a result, markets within the region should have little or no problem with natural gas supplies. On the other hand, the numerous current proposals to expand natural gas transmission capacity to growing regional markets, such as the Milwaukee, Wisconsin metropolitan area, could reflect the possibility of localized capacity constraint situations developing if demand growth outpaces the implementation of these proposals.

* The Southeast Region has no immediate pipeline capacity limitation problems. Florida, North Carolina, and South Carolina experienced significant growth in natural gas demand over the past decade but sufficient additional pipeline capacity has been installed to match the increase in demand. During the early 1990's, North Carolina and South Carolina, in particular, experienced some interstate pipeline curtailments in service during extremely heavy demand periods that occurred not only in the local area but also downstream in Northeast regional markets. The addition of new pipeline capacity and the integration of sizeable liquefied natural gas (LNG) peaking facilities in North Carolina have lessened, although not eliminated, the possibility of this occurring again.

* Within the Southwest Region there are no apparent interstate capacity constraint problems, although some local bottleneck problems on gathering or intrastate systems in the region could limit service to the interstate system during severe weather periods. The growing market for natural gas in the region's electric generation sector may bring about some localized service limitations in the near term, but the growth in natural gas pipeline capacity in the region is keeping pace with this growing demand. On the interstate pipeline network, which exports regional supplies to other parts of the nation, selected systems have upgraded to enhance operations and system integrity. But because competition from Canadian supplies in the Midwest in particular has lessened the growth in demand for Southwest supplies, and hence, pipeline capacity serving that region, there has not been a need for any major expansion over the past decade. Indeed, one natural gas pipeline, Trunkline Gas System, extending from Louisiana to Il linois, is in the process of converting a portion of its system to a natural gas liquids line.

Recent Expansion Activity

Through this year and last, at least 61 natural gas pipeline construction projects will have been completed and placed in service in the United States: 35 in 1999 (Figure SR2) and 29 in 2000 (Figure SR3). Of these, 21 are new pipelines (10 of which are 100 miles or greater in length), while 40 are expansions to existing systems (including new laterals). The cumulative new installed pipeline capacity represented by these projects amounts to more than 12.1 billion cubic feet per day (Bcf/d) of added pipeline capacity (Figure SR4). These projects either added capacity directly to the interstate network, improved local intrastate service, or expanded access to producing fields or natural gas market centers. [4] Sixteen of the projects added capacity that increased interregional transmission capability by 6.1 Bcf/d:4,381 million cubic feet per day (MMcf/d) within and into the United States, 771 MMcf/d into Canada, and 893 MMcf/d into Mexico (Figure SR1).

Major Growth in Import Capacity

Much of the 1999-2000 pipeline construction has focused upon expanding the deliverability of Canadian gas to the U.S. Midwest and Northeast (Table SR1). The Maritimes and Northeast Pipeline system, which began service in early 2000, transports gas from the Sable Island field in eastern offshore Canada to New England, and together with the Portland Natural Gas Pipeline system, in service in early 1999, increased pipeline capacity into the Northeast by 578 MMcf/d. That is more than the combined 1998 annual natural gas consumption of five of the six New England States (excluding Massachusetts). More impressively, in October 2000, the Alliance Pipeline, which will be capable of transporting up to 1,325 MMcf/d of natural gas from British Columbia, Canada, to Illinois, is expected to be placed in service. These projects alone represent a 15-percent increase in overall natural gas import capacity since 1998: a 58-percent increase into the Central Region (most of which is destined for the Midwest) and a 23-percent in crease into the Northeast Region.