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Fuel switching offers coping mechanism for winter demand

Hydrocarbon Engineering,

Extreme cold weather in the US has boosted natural gas demand beyond the capacity of the natural gas delivery system that supplies New York and New England.

As a result of this, the spot price of natural gas rose above the price of distillate and residual fuel oil in the Northeast for some days this winter.

Decisions regarding the dispatch of electric generation units are generally based on variable operating costs. Because of this, the use of oil for power generation can increase when natural gas prices are higher than distillate or residual fuel prices in cases where fuel switchable or oil only units are available to operate.

The Independent System Operator New England (ISO-NE) estimated that 24% of overall generation in the area between 23rd – 25th January used oil.

This use was facilitated by the fact that approximately 30% of the electric generating capacity in New York and New England is able to switch between natural gas and oil.

Because of concerns in regards to the deliverability of natural gas in New England after the 2012 – 2013 winter, ISO-NE instituted a temporary reliability program for this winter. This included:

  • Incentives to ensure that owners/operators of oil fired generators increase their fuel inventories.
  • Payments to dual fuelled units for testing their capacity to use oil.
  • Some changes to the market monitoring procedures aimed at increasing the flexibility of dual fuelled units.
  • A demand response program that reduces the amount of electricity needed during peak hours.

This program is likely to have contributed to a 2 million bbl build in total petroleum liquids inventories held by electric generators in the Northeast since July 2013. Most of the increase was in residual fuel oil. During the recent extreme spike in the price of natural gas in New England, these inventories enabled generators to meet electricity demand with lower cost fuel oil.

Adapted from a press release by Emma McAleavey.

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