CAPITOL BUILDING, ALBANY, NY, UNITED STATES - 2016/04/05: Groups rally to save NYS from FERC and to ... [+]
Natural gas developers are busily exploring while their counterparts in the pipeline business are getting ensnared in the regulatory process. Williams Companies, for example, has cut bait in New York, saying that after six years of legal wrangling that its Constitution Pipeline could not be financially justified.
Natural gas will continue to replace coal-fired generation. The fuel will, therefore, need an expanded infrastructure to pipe it out and to store it. But the problem now is that an oversupply exists that is driving down prices: $2.17 per million Btus at present and not projected to climb past $3. Consequently, the industry is spending more than it is making, which is impacting pipeline development for which residential and business customers help pay.
“While Constitution did receive positive outcomes in recent court proceedings and permit applications, the underlying risk-adjusted return for this greenfield pipeline project has diminished in such a way that further development is no longer supported,” Williams said in a statement.
The Constitution Pipeline first got regulatory approval in 2014. It would have been 124-miles, carrying Pennsylvania gas into New York State. But New York’s leadership has long been skeptical of shale gas — the unconventional form of natural gas that rests a mile beneath the earth’s surface and that must be drilled out using a concoction of chemicals, sand and water.
In 2016, the state refused a water permit for the Constitution Pipeline. The Federal Energy Regulatory Commission later reversed that decision. The state, though, adopted a net-zero carbon policy by 2050, creating a different set of hurdles for Williams. As a result, the pipeline company pulled the plug.
Not only is natural gas used to fuel electric generators. It is also used to feed chemical and manufacturing processes: Natural gas liquids – ethane, propane, butane, and others – are split off and used as valuable feedstocks to create products for everyday use before getting exported around the world. Nevertheless, shale gas drilling faces stiff opposition among those concerned about water quality and increased carbon emissions. Their preferred tack is to invest more in green energy, which is New York’s position, generally speaking.
“At this critical moment …, we cannot afford unnecessary fossil fuel projects that will lead to more fracking and exacerbate our climate crisis,” says Moneen Nasmith, with EarthJustice. “It’s time to embrace a 100% clean energy future.”
Ink Stains
Does this episode paint a bleak picture about the future of natural gas or does it merely illustrate the difficulty in getting pipeline infrastructure built?
Consider that the U.S. Supreme Court is now deciding the future of the Atlantic Coast Pipeline, a joint venture between Dominion Energy and Duke Energy. The pipeline was first approved three years ago but it has become entangled in legal proceedings that have Dominion cutting its forecast for natural gas. The cost of the pipeline, meantime, has climbed from $5 billion to $7.5 billion — a price to be borne, in part, by ratepayers.
The Sightline Institute along with the Institute for Energy Economics and Financial Analysis are also questioning the viability of smaller natural gas developers: in the first quarter of 2019, for example, 29 fracking companies reported losses of $2.5 billion. An absence of positive cash flow means that companies have to dip into their reserves or seek financing from debt and equity markets that have been timid.
At the same time, the coronavirus is hurting natural gas producers and especially those that export the fuel. It has reduced demand and driven prices even lower.
“Oil and gas companies have raised little new money from equity and bond markets since … even though the oil and gas sector faced a wave of debt refinancing … ” the Sightline and energy institute said.
Despite the ink stains, global natural gas production increased by 190 billion cubic meters in 2018 or 5.2%, says BP, in its statistical review. Natural gas consumption, meantime, rose by 195 billion cubic meters in 2018. The United States accounted for almost 40% of global demand growth and more than 45% of the increase in production.
Circling back to New York and how it might factor into the broader outlook: it has a ban on high volume shale gas development or 80,000 gallons per well. Yet, ICF International says that New York City gets about 57% of its natural gas supply from shale deposits in the Marcellus Shale region in the eastern U.S. It expects that level to grow to 80% by 2030. Most power plants in the city use natural gas. ICF concludes that using more natural gas — and less oil-fueled energy – will result in significantly less greenhouse gas emissions.
“Natural gas remains a critical part of our country’s clean energy future, and Williams is well-positioned to take advantage of the growing demand for natural gas as a reliable, low cost and clean alternative for power generation fuel, heating oil and diesel,” Williams Cos. said.
Renewables may cut into the growth of natural gas. But the fuel will remain a staple for electric generation, leading to more production and new pipelines. The oversight, though, helps keep the industry’s power in check — a process that includes all stakeholders and involves community safeguards.
