Appalachian Basin

Cold, Hard Fact: Northeast Paying Heavy Price for Natural Gas Pipeline Obstruction

To state the obvious, it has been bitterly cold throughout a majority of the United States this week. Roughly 180 million Americans are experiencing sub-freezing temperatures, Niagara Falls is frozen over, and Tallahassee, Fla., could get its first measurable snowfall since 1989. New Year’s Day 2018 marked the coldest day in the 21st Century, and as a result the U.S. record for natural gas consumption was obliterated.

But ironically, throughout much of the Northeast — where an abundant supply of natural gas is in close proximity — “Keep It in the Ground” movement-driven blocks and delays on natural gas pipeline projects have resulted in grid operators turning to higher-emitting fuel sources to meet the extreme demands in the region. Natural gas prices are also skyrocketing in the Northeast while remaining low and stable elsewhere in the country, particularly in areas where infrastructure has kept up with demand.

Shale to the rescue

America has been in a bit of a freeze since Christmas. This, coupled with natural gas holding down the top spot for U.S. electric generation since 2016 and residential natural gas use (heating, cooking, etc.) accounting for 16 percent of total U.S. natural gas consumption in 2016, it’s no surprise that record temperatures led to record natural gas consumption.

According to Bloomberg, from Dec. 22 to Dec. 26, total natural gas consumption increased by 31 percent, with Americans using 115.7 billion cubic feet (bcf) of natural gas the day after Christmas and setting a new record for this time of year.

Then on New Year’s Day, the U.S. shattered that high, and a previous overall record set in 2014, when Americans consumed 143 bcf of natural gas, as the following chart from Bloomberg shows.

But here’s the thing – unlike in 2014 when extreme temperatures led to the price of natural gas doubling to roughly $8 per a million British Thermal Units (mmbtu), prices have remained pretty constant around $3/mmbtu across much of the country as the following chart shows.

So why hasn’t the cost jumped so much this time around? As Financial Times reported,

The difference this time is even stronger gas production from shale basins such as the Marcellus in Pennsylvania and the Permian in Texas. New pipelines have also brought more gas from these regions to homes and businesses, buoying drillers. Prices of gas in production basins ‘have exhibited a relatively tepid response’ to the cold temperatures, said Teri Viswanath, an analyst at PIRA Energy Group. ‘Why? Rapid production growth that has unfolded in the second half of 2017 has limited concerns of a supply shortage this winter.’” (emphasis added)

Unfortunately, that’s not the case everywhere. Despite the abundance of natural gas in the Northeast thanks to the Marcellus and Utica shales, the region – particularly New York and New England – is experiencing some of the highest natural gas and electricity prices in the country. In fact, New England had the highest price for natural gas in the world at the end of December ($35.35/mmbtu).

Stephen Dodge, executive director of the New England Petroleum Council, recently put this amount into perspective, saying,

“You read that correctly: Not just the highest natural gas prices in the United States, or in North America, but on the entire planet. When the spot-market price for natural gas hit $35.35 on Dec. 26 at the main trading hub for all of New England, the Algonquin Citygate, that was more than 13 times more expensive than at the central U.S. price-setting location, the Henry Hub in Louisiana. That’s the equivalent of filling up your car with $32-a-gallon gasoline.” (emphasis added)

Northeast prices for Jan. 3, 2018, were an improvement, but certainly not low cost by any standard:

Source: EIA

But how does a region that sits next door to (and in some cases, on top of) one of the largest supplies of natural gas in the world find itself with a shortage of the resource – and paying top dollar for it?

New York and New England aren’t quite grasping the whole “if you build it, they will come” concept.

A major issue with the supply constraints currently hitting New York and New England is a lack of pipeline infrastructure. The Institute for Energy Research explains,

“Many New Englanders would like to convert their home heating systems to natural gas, but are not allowed because there is insufficient pipeline capacity to get the natural gas to their homes. Not only does the residential market want natural gas for home heating but so do the industrial and electric utility markets. Low cost natural gas is in demand and has been replacing coal and nuclear power in electricity markets in New England, which is now over 50 percent dependent on natural gas. But despite the demand, natural gas pipelines are having a tough time getting built in New England.”

Forbes contributor Ellen Wald recently explained in more detail why pipelines have a tough time getting built in the region saying that companies have been “stymied by hostile local governments and ultimately by a 2016 ruling from the Supreme Judicial Court of Massachusetts that forbade utility companies from entering into long term natural gas deals with the intent of passing on charges to customers.”

Another Forbes contributor, David Blackmon, described an additional factor in the obstruction of new infrastructure being built to service New York and New England: New York Governor Andrew Cuomo.

“As if it weren’t bad enough that Cuomo’s actions are denying thousands of New York residents the right to exercise their property rights and causing the state’s residents to pay higher prices for home heating and electricity, Cuomo’s obstruction costs New Englanders as well.

Why?  Geography.  See, it’s impossible for any company to construct a pipeline to move natural gas from the Marcellus region to New England without going through New York, which forms a land barrier between the two regions.” (emphasis added)

As Blackmon also highlights, a 2017 report from the U.S. Chamber of Commerce that analyzed the severe economic impacts the region will face if pipeline capacity is not increased found that,

“The region’s residents pay 44% more than the national average for electricity, 29% more for their residential natural gas supply, and regional manufacturers pay a whopping 62% more for their electricity supply than the national average.”

In fact, as Dodge notes in his Providence Journal opinion piece, “all six New England states rank in the top 10 of U.S. states for most expensive electricity, up to 50 percent higher than the national average.” And, he also attributes the issues the region is facing with high electric costs to New York’s blocking of infrastructure, saying,

“Compared with homeowners in other places across the country such as Ohio and Pennsylvania, New Englanders are paying hundreds of dollars more every year for electricity and home heating, all because everyone from local environmental extremists to New York Gov. Andrew Cuomo has relentlessly opposed every reasonable proposal to let New England secure the natural gas pipeline capacity it needs.”

Katherine Eiseman, activist and president of the Massachusetts Pipeline Awareness Network – a group that has worked alongside groups like No Fracked Gas in Mass to prevent natural gas infrastructure from being used in the Northeast and promote the use of more renewable energy – rightly told, “Despite the cold, power plants have had no problem providing reliable power to New England.” That’s a testament to the preparedness of the market suppliers and power plants, for sure.

But she then used that fact to try to justify her claim that “temporary winter price spike should not be used as an argument to build more pipelines,” which is absurd. As Dodge recently said,

“Leading the world in needlessly expensive natural gas is a distinction New England is inflicting on itself and can’t afford. The past week has shown us, in dramatic fashion, the terrible price we’re all paying for being refused reasonable and long-overdue investments in our natural gas pipeline capacity.”

Further, this isn’t a temporary issue. As Dodge noted, the Northeast consistently has some of the highest electricity prices in the country, and the recent cold weather is just a shining example of the issue.

To go back to the Energy Information Administration (EIA) daily price chart from Jan. 2, New Englanders and New Yorkers are still paying the highest costs for natural gas and electricity in the country, and that’s directly related to a lack of natural gas supply that could be alleviated with increased pipeline capacity.

Source: EIA

Further, while there is an argument to be made for the importance of every energy source, it is a fact that the conversion to natural gas-fired power generation is reducing U.S. greenhouse gas emissions. ISO New England (ISONE) and New York ISO (NYISO) are still using a hefty amount of natural gas, 23 percent and 16.3 percent, respectively, as of Wednesday evening, and aren’t having “widespread blackouts” as Eiseman noted. But in order to keep up with the increased demand that such cold temperatures are causing, both ISONE and NYISO have had to switch to higher emitting fuel sources that activists pushing for more renewables might find less than satisfactory.

John Borruso, director of natural gas trading at Con Edison Energy in New York, told Bloomberg that,

“…many Northeast generators have dual fuel capabilities and it may be cheaper to start burning oil instead. Fuel switching makes sense in New England when gas is around $14 per million Btu and that drops to around $10.50 or $11 in New York.”

And that’s exactly what’s happening. As Wald noted in her Forbes piece, ISONE is now using petroleum (oil) to meet its increased electricity demands.

“Over the course of one day, December 27, 2017, petroleum use grew from less than 500MW to nearly 4,000MW. Petroleum accounted for 22% of the electricity generation, just behind nuclear at 35% and natural gas at 24%.”

As can be seen in the following real-time chart from ISONE, at least on Jan. 3, that percentage of oil use has actually increased with the resource currently the number one fuel source for electric generation in New England.

NYISO does not break its dual fuel generation down further, but it can be coal, oil or natural gas. Regardless, as the following real-time NYISO chart shows, New York’s energy generation is currently 55.4 percent fossil fuels.

What’s more is that while nuclear currently accounts for more than a quarter of New York’s energy generation mix, NYISO has determined that the Indian Point nuclear facility that has been slated for retirement can close without impacting system reliability based on planned projects that include three natural gas or natural gas dual fuel facilities already under construction.

In other words, natural gas and other fossil fuels will continue to play an important role in the state’s energy mix, even with Governor Cuomo’s aggressive renewable plan and obstruction of necessary pipeline infrastructure.

The bottom line is that most of the country is riding out this cold wave without increased costs thanks to an abundance of natural gas. Yet those states closest to one of the largest sources are experiencing pipeline capacity constraints that are causing unnecessary higher costs for the region and grid operators to look to alternate fuel sources to make up electricity deficits.

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