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Power Play
Islander East head Daverio states the case in favor of a cross-Sound gas pipeline
Charles Daverio is president of the Islander East Pipeline. He has worked for three decades in the energy industry, the last 15 years of his career in the natural gas business. Islander East is a partnership of Duke Energy of Charlotte, N.C. and New York-based Keyspan Energy. Both are large players in the energy industry — Duke on a national and international basis, while Keyspan comprises five local distribution companies: Brooklyn Union, Long Island Lighting Co., Boston Gas, Essex, Colonial and Energy North.
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Business New Haven
7/7/2003
By: BNH
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When was Islander East created?
Islander East was formed in 2002. It was a project put together to enhance the ability to bring a third supply base into the New York metropolitan/Long Island region for natural gas.
Islander East is a pipeline that ties into Algonquin, a pipeline about ten miles from the Connecticut coastline. The first six miles is an existing Algonquin pipeline that will be re-tested to supply higher-pressure gas. The next four miles follow a right of way either presently owned by Duke or the Tilton Railroad. It hits the Connecticut coast at that point and goes approximately 25 miles across the Long Island Sound. There is a compressor that will be put at the head of the system used to transport gas. It comes onshore and travels ten miles on land to the center of Long Island, at which point it would feed the Keyspan distribution system.
Where else does the Algonquin line travel?
The Algonquin Line goes in two directions. In the west, Algonquin goes back to the Texas Eastern system in Pennsylvania, which then goes to the Gulf [of Mexico]. On the eastern side, Algonquin goes into Boston and ties into Maritime Northeast which then connects to Sable Basin off the coast Nova Scotia.
Is the Sable Basin a newer source of gas?
Up until three or four years ago, the Sable Basin could not get gas to the U.S at all. At that point, Maritime Northeast was built and it brought gas down to the Boston region. This year a project called Hubline is being built which will bring gas from the north side to the south side of Boston and tie into Algonquin. The projects have been put together to efficiently flow gas from the Sable Basin into the Northeast.
Why was gas not available from Sable in the Northeast?
My first trip to Sable was in the early '90s and people had known there was gas probably [since] the '80s. The market and price structure needed to be developed and there was need for people willing to invest money. This has happened in the last four years and now allows Sable gas to move to the Northeast market. There has to be a business [justification] shown or access won't be developed. They saw a growing market in New England, particularly the Boston area, some development in Maine, and they saw some development potential in the Canadian maritime provinces.
The producers, the Shells and Mobils of the world, felt there was enough gas in the Sable Basin to do a drilling program, and Duke Energy thought there was enough energy to bring the gas down to market. So both invested the money, which started the gas flowing from Sable.
The advertisements we read say there is a near endless supply of gas. So why do we have shortage today: Is it a lack of production
or a failure of distribution?
You hit both. Producers saw about two years ago a very high price of gas - around $10 two winters ago. But the next summer gas was $2.50 and they backed off their drilling program and the market backed off price. We're finding demand is leading the development of new drilling and new wells. And price is the indicator of when that is going to occur. We have seen a significant increase of wells being drilled this year. Once you have wells, we still need the infrastructure from [the point of] production to the market. Islander East is one of these infrastructure projects that is needed to bring the access to the markets that need them.
When you say 'markets,' are you talking about power plants. Does anyone else use the huge volumes of gas that would constitute a 'market'?
Yes. If you look at who has signed up to use the capacity of Islander East, there are two kinds of markets. The local distribution companies [LDCs] on Long Island are growing at a rate to sustain and support demand for additional gas for winter use for home heating. The penetration rate on Long Island is very low for natural as a heating fuel. Oil is the predominant fuel used to heat homes on Long Island. The contracted capacity of Islander East is the 70 percent to the LDCs, and 30 percent to power plants. Both markets are there and growing and both need additional supply to, hopefully, wean us off the oil of the Middle East.
In a recent newspaper article state Attorney General Blumenthal was quoted saying that the market wasn't there for natural gas and that Islander East opponents were in fact going to 'save the company from itself.' How confident are you that there is a market for this gas?
The LDCs are presently scrambling to make alternate plans because the project has been delayed one year. You can probably sustain that for a year or two, but it's not the efficient way and it will probably lead to prices being higher than you need. Long Island is converting [from oil to gas heat] at the highest rate nationally, [natural gas usage] growing at six to eight percent annually while the nation is only growing at two percent. There is a large market that Keyspan is trying to convert - and is making significant inroads.
Opposition to pipeline development is hardly new. Is this different in any way?
I was involved in two infrastructure projects into the Northeast. I was involved in the Iroquois Pipeline in the late 1980s. There is always opposition by people who oppose almost any infrastructure projects of an energy nature.
Opponents say that a competitive project was scrapped for a lack
of a market.
There was a project called Eastern Long Island that had a completely different set of market participants. If you look at who was willing to sign contracts, Islander East has the local utilities and a power plant [with] a license to be built. For the other projects, the customers tended to be marketers. And since the Enron [collapse] most marketers are not taking the same kinds of positions they might have taken two years ago. I believe the other project owners felt that the market they had signed up wasn't going to support their project.
If the other project had been built wouldn't the LDCs have signed up
if they needed the gas?
Keyspan and the other companies that have signed up [with Islander East] see the value of a second diverse line. If they didn't build this line and only relied on this first line and on a cold winter day it went out of service, there are somewhere between 120,000 and 160,000 residential customers that couldn't heat their homes. From a [standpoint of] reliability and security and diversity of supply, Keyspan feels strongly that they favor the second crossing. The other is a single-feed pipeline all the way back to Canada. The New York State Public Service Commission felt the same way, [that] for New York gas residential customers it was important to have a second means of supply.
The state of Connecticut has enacted a moratorium on any energy project going across the Sound. How does that affect Islander East?
Our view is that the [Connecticut] Department of Environmental Protection must act on federally delegated activities because it is a federal activity, not a state activity. The permit we are asking (Coastal Zone Management), which is in front of the DEP, is a federally delegated permit. I haven't heard them disagree that they have to act even though the moratorium is in place.
The DEP either has to deny our application or agree with our application as Coastal Zone Management. We have been working with them to try address all of their concerns.
The DEP denied our applications and we've set up meetings with them and other agencies to resolve their issues. Because of the procedural schedule and timing we had to withdraw the application and refile so we didn't have to go through a complete new filing. Since then we were approved by FERC [the Federal Energy Regulatory Commission] we tried to be sensitive to the shoreline. We are going to directionally drill from onshore Connecticut to 3,000 feet offshore. We're going to remove the spoils from digging. We're currently trying to set up a meeting with the DEP and we're hoping these approaches are solving the problems they've been raising.
What about air quality? Why has there been no discussion about that?
We think there should be. The thing with air quality is we've offered to bring gas to the so called 'Sooty Six' [power plants] and have them convert [from present coal or oil generation] and clean up the environment. The problem is they have to make decisions as to whether they want to spend that money; so far none have been willing to spend it.
In testimony filed with New York State, Brookhaven Energy [a power plant that signed up to use natural gas from Islander East] estimated that NOX [nitrogen oxide] emissions on Long Island would be reduced by almost 1,300 tons per year and SO2s [sulpher dioxide] by about 675 tons per year [as a result of conversion]. We looked into the impact on air quality if we could get 500 megawatts of gas-fired generation on Long Island, It would cut SO2s by five percent and NOX by a little under nine percent.
So you're willing to sell the 'Sooty Six' gas?
We would have to build a pipeline. We're willing to expend the dollars to bring them to this project and for them to be able to use natural gas. They have to have a willingness to convert. We're not going to build a pipe there and they continue to burn coal.
How much reaching out to the environmental community have
you done?
We have met with different constituents of the environmental community and the agencies to find out what their real concerns are and how we can address them in a way that makes it acceptable to them. We will continue to outreach to anyone that is willing to come to us with a reasonable way to solve environmental issues.
What is holding back the industry in developing natural gas as a transportation fuel to improve air and water quality?
Keyspan on Long Island has tried to develop an NGV [natural gas vehicle] market and has made considerable progress. We provide gas to fleets of buses on Long Island and worked with them to build an NGV filling station at the bus terminal. So they could fill the buses on a quick-fill basis.
Have you talked to the Department of Transportation in Connecticut? We have a great number of noxious buses in downtown New Haven.
It tends to be that the local distribution companies that take the lead. On Long Island Keyspan has actively pursued that market, and we have found that fleets were the real target until you have enough infrastructure that personal cars could be used.
[Islander East co-owner] Duke Energy is building a pipeline under Boston Harbor. What kind of opposition are you facing there?
We have a lot of the same environmental issues but we were able to get the permits we needed. [U.S. Sen.] Ted Kennedy is supporting our project up there and has worked to help us. One of the things people in Connecticut don't realize is that there is no natural gas in Connecticut. Ninety percent of the gas used in Connecticut travels through New York, and the other ten percent through Massachusetts. If those two states felt the same way about infrastructure as some in Connecticut there would be a whole lot less gas here. If states are not going to look at energy as a regional issue - particularly something like natural gas, that has to move from where it's produced to where it's used - we are going to have trouble having a sound and efficient energy policy.
Why hasn't the gas industry been able to generate a more positive spin?
Natural gas has a good story to tell. It tends to only make local press when we hit these kinds of issues. It's the quiet part of our energy industry. We have tended to not be controversial, but we are becoming controversial as we try to build these new infrastructures.
What would the impact be on Connecticut's energy supply if both the gas line and cross-Sound electric cable were allowed to operate?
There is a set of electric cables that operate from Long island to Norwalk. They've been there many years and have sent energy back and forth. It's been proposed by some that if power was coming down the Cross Sound Cable, power could be sent up the Norwalk cable and help the southwest 'load pocket' [Fairfield County] where there is congestion and cost being passed through because of the congestion. Last year on a day that wasn't particularly warm, you had equipment problems and southwest Connecticut was helped by power coming over from Long Island on the [Norwalk cable]. There are more innovative ways that if the regions really wanted to work together it could make energy policy work better. There was a Connecticut task force that the legislature set up. Their conclusion was that Connecticut should be good neighbors because it would be more efficient with a regional approach. You have to work your way through the political people who don't necessarily get the benefits of a regional approach. They get more benefit from a local approach. I think that is part of the problem: local politics versus regional solutions.
Has there been any opposition on Long Island since this project impacts their Sound, too?
No, New York has given us all the permits we need to construct at this point. There are no issues on Long Island. The five Long Island congresspeople have just written a letter to support our project as a needed infrastructure project for the region.
Some recent statements regarding the moratorium have hinted at more of a hardball approach from Islander East. Do you expect to go to court to obtain approvals?
We can never rule out a court action as part of how we move forward. The partners are committed to this project. If we get to the point where court action is appropriate we'll take such action. Courts are not as predictable as other things might be. We think the best course is to try to find a solution working with the state of Connecticut. No one benefits by legal fees and court fights. Before we get there we would exhaust all our avenues.
Do you think this is on the radar screen of the general Connecticut public as opposed to Branford citizens and certain public officials? Also, what would be the tax impact on Branford?
I don't believe it is on the radar screen outside of Branford. [The tax impact to] Branford [would be] around $200,000 annually.
If you were starting tomorrow, how long would it take to build and how much would it cost?
It would cost about $182 million, with about $46 million in direct and indirect investment during construction for the Connecticut economy. Our schedule is to have gas flowing November 2004. [To meet that] we have to get the state of Connecticut permit and begin construction in the fourth quarter of this year.
Wasn't the purpose of the moratorium to stop Islander East?
The purpose was to stop energy projects - Islander East being one of them. We think we can reach a resolution with Connecticut that allows this to be built. We believe the state DEP must act on our application, because is a federally delegated activity.
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