Appalachian Basin

Shale + New Infrastructure = Low-Cost, Reliable Gas Supply for Northeast

The northeastern United States has paid a premium for energy over the years, but new data show that the development of natural gas from the Marcellus can reverse that trend. Even better, shale development has the potential to keep prices low for years to come.

There are a number of factors that affect energy prices in the region, but the single biggest factor is increased production of natural gas. According to a recent report by the Energy Information Administration (EIA), production of natural gas in the northeast has more than quintupled in recent years, increasing from 2.1 billion cubic feet per day (bcf/d) in 2008 to 12.3 bcf/d in 2013. That increased production has reduced the need to import natural gas from other regions and kept prices in check.

For example, in 2008, before development of the Marcellus Shale took off, the region imported more than 10 bcf/d from the southeastern United States and eastern Canada. But by 2013, imports from the southeast had declined by about 50 percent, while Canadian imports fell by about 80 percent. According to EIA, in April 2013 the northeast actually became a net exporter of natural gas to Canada.

What does this have to do with natural gas prices? Some have claimed that the northeast is plagued by price spikes during the winter months (owing to increased demand for natural gas to heat homes and businesses), and that such spikes are a fact of life – with or without shale.  However, an EIA report from this week indicated that “seasonality” is becoming less of a factor on natural gas prices because of increases in supply and storage capacity.

So, while increased demand certainly can be a factor in price fluctuations, the biggest impediment to keeping energy prices low in the region over the long term seems to be something else: pipeline infrastructure. In fact, pipeline capacity has consistently been cited as significant problem for the region. Even Congress understands there is a problem, with the U.S. House passing a measure today that will speed up the approval process for natural gas pipelines.

There are also signs that pipeline capacity is being addressed, albeit not at a pace to keep up with northeast demand.  An EIA analysis from earlier this year showed that 245 miles of new pipeline were constructed in 2012, the second highest addition since the mid-1990s. But the EIA also noted that the regional markets “still experience frequent constraints.”

A good example of the correlation between increased capacity and price reduction was clearly seen with the recent opening of Spectra Energy’s new 15-mile pipeline extension into New York City, the first in over 40 years. Just in anticipation of the pipeline opening — before the first wisp of natural gas actually entered the city — natural gas prices fell there by about 17 percent.

What’s clear is there is an abundant supply of natural gas in the Marcellus, and there’s increasing demand for that gas in the northeast.  Given its proximity to the Marcellus, the region should be in a position in the future to enjoy some of the lowest energy costs in the country.

Unfortunately, with activists increasingly focused these days on attacking upstream development through the backdoor means of going after the companies that build our pipelines, this eventual outcome for the northeast is far from certain. That’s why EID continues to fight hard on the pipeline front – and will continue to do so as more and more of this critical infrastructure comes online and services new communities.


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