All that Gas

all-that-gasNumerous articles have come out in the past couple of months declaring the fracking boom is over. While this brings cheers from fractivists, it is important to note why the fracking boom is “over”.

It is a simple case of supply and demand.   The fracking boom has over produced natural gas leading to a glut in the market. This glut caused market prices to fall considerably and making profitability to fall.   It just isn’t profitable to continue fracking.

Drilling corporations began losing money on new wells as far back as 2012.   At that time, in the Marcellus Shale, corporations began moving rigs in search of shale oil, hoping this would be a more profitable venture.   They did find shale oil, however it was also “too gassy”.

“The results were somewhat disappointing,” said Philip Weiss, an analyst with Argus Research in New York. Early data show “it’s not as good as we thought it was going to be.”

The Marcellus Shale had over 100 rigs actively drilling at one point. There are now less than 35 today, despite the PA Department of Environmental Protection (DEP) rubberstamping permit machine running at full speed.   A permit does not necessarily mean a corporation will be actually drilling.

The fracking boom is not really over; at best it is on “pause”.   Once the glut has been decreased, the fracking will resume.

All that Gas and Nowhere To Go
The most common complaint by the industry is there is a lack of pipeline infrastructure to move the natural gas from a wellhead to market and this is why there is a glut. Their solution is to build more pipelines.

While more pipelines would move the natural gas from the wellhead, is there sufficient domestic demand at the other end to decrease the glut? Do we really need more pipelines?

According to a June 2015 Environmental Defense Fund article by N. Jonathan Peress:

Nationally, the U.S. has plenty of existing pipeline infrastructure to accommodate significantly expanded gas use, including to replace coal power plants with gas in order to meet the requirements of the proposed Clean Power Plan. In fact, we aren’t even using 46 percent of the pipeline capacity we already have, according to a recent study by the U.S. Department of Energy.   In its Quadrennial Energy Review, DOE concludes that in many areas of the country, enhancing the flexibility and capability of the existing network is a better investment than building new pipelines.

The DOE report states:

In any given year, natural gas production is greater than natural gas demand plus net exports because of fuel used or lost in all stages of natural gas production, transmission, distribution, and storage.

The DOE report concludes:

Two primary factors mitigate the need for additional interstate natural gas pipeline infrastructure and related capital expenditures in these scenarios. First, the growth in both natural gas demand from electricity generation and natural gas production is broadly distributed rather than geographically concentrated, reducing potential interstate pipeline capacity constraints as well as the need for new interstate pipelines. Second, increasing utilization of capacity that is not fully utilized in existing interstate natural gas pipelines, re-routing natural gas flows, and expanding existing pipeline capacity are potentially lower-cost alternatives to building new infrastructure and can accommodate a significant increase in natural gas flows

Do we need more pipelines when the current infrastructure is operating at slightly more than half capacity, and where enhancing flexibility and capability is a better investment?

Where is All That Gas Going
Current estimate forecast approximately 10% of natural gas is headed for exporting to other countries, this includes exports via pipelines to Mexico and Canada as well as via export facilities being built and proposed along the Atlantic coast and the Gulf of Mexico.

Per Williams Co. 2014 1st Quarter Financial Report, CEO Alan Armstrong stated: (emphasis added)

“We’re excited about the accelerating pace of expansion projects at Transco, including Atlantic Sunrise, Dalton Expansion and our newly announced Gulf Trace project. The Atlantic Sunrise and Gulf Trace projects will serve as important infrastructure for future LNG export facilities at Cove Point and Sabine Pass.”

 Looking at the routes for other pipelines being proposed, the end point tend to be at hubs, where the natural gas may be sent to yet other pipelines headed for coastal export facilities or land based pipelines headed for Mexico and Canada.

Natural Gas for Homes?
The natural gas industry says we need more pipelines. The natural gas industry claims these pipelines will provide natural gas to American homes.

As an example, the PennEast Pipeline Company, LLC claims their pipeline will service 4.7 million homes in NJ and PA.

However, New Jersey averages a total of 1.8 billion cubic feet of natural gas per day across all users. The PennEast pipeline will increase that amount by approximately 1 billion cubic feet which creates 55% over-capacity.

PennEast does a little dance in explaining the difference between 4.7 million homes and 55% over capacity:

In an effort not to quantify without using industry terms (e.g., bcf, mcf), PennEast has shared that the natural gas transported through the pipeline would be enough to heat the equivalent of 4.7 million homes, not listing specific homes or communities to be directly serviced.

PennEast had previously stated in 2014: (emphasis added)

“This natural gas line is not for exports,” Kornick said. “For now it is for Pennsylvania and New Jersey utility companies only.”

Using the 4.7 million homes as a comparative misleads people to believing that 4.7 million homes will benefit from the pipeline as none of the natural gas in the pipeline will be going to homes or communities along its route. The same goes for many of the new pipelines being constructed or proposed.

Inexpensive Gas?
The natural gas industry has many advertisements claiming it will be providing “cheap” gas to consumers.

To refer back to the 10% export figure, this is based on the current availability of coastal export facilities and land based pipelines exporting to Mexico and Canada.   As more land-based export pipelines and coastal facilities become operational, the “glut” will decrease, and prices for domestic home use will rise.

In addition to consumer cost increases from decreases in the glut, the Federal Energy Regulatory Commission (FERC) approved a new policy in April 2015 which allows interstate pipeline corporation to recover certain costs – meaning it will be passed along to consumers.

The Federal Energy Regulatory Commission (FERC) today approved a new Policy Statement allowing interstate natural gas pipelines to seek to recover through a surcharge mechanism certain capital expenditures made to modernize pipeline system infrastructure in a manner that enhances system reliability, safety and regulatory compliance.

Meanwhile, on Thursday, March 19, 2015, Columbia Gas of Pennsylvania, Inc. (Columbia Gas) filed a request with the Pennsylvania Public Utility Commission (PUC) seeking approval to adjust base rates for distribution service in order to allow for the continued replacement of its natural gas distribution system. These filed rates seek an increase in annual revenues of approximately $46.2 million.

A number of other natural gas corporations are seeking the same “rate adjustments” for maintenance and repair of their long neglected pipelines.

The Polar Vortex Monster
polar vortex
Last year’s winter introduced Americans to a scary term – POLAR VORTEX.

The natural gas industry is pushing the term as it sounds scarier than calling the frigid weather a “cold snap”.

What exactly is a “Polar Vortex”?

According to Accuwheather.com:
“The polar vortex is not a recently discovered phenomenon; in fact, it has been talked about in the meteorological world for decades,” AccuWeather.com Senior Meteorologist Bernie Rayno said.

A polar vortex is a large pocket of very cold air, typically the coldest air in the Northern Hemisphere, which sits over the polar region during the winter season.

The frigid air can find its way into the United States when the polar vortex is pushed farther south, occasionally reaching southern Canada and the northern Plains, Midwest and northeastern portions of the United States.

Kinder Morgan’s funded study stated : (emphasis added)

New Englanders could have saved approximately $3.7 billion in wholesale electricity costs during the 2013-2014 ‘Polar Vortex’ winter had the proposed Northeast Energy Direct Project (NED) been in service, according to an independent study by ICF International, commissioned by Tennessee Gas Pipeline Company, L.L.C. (TGP), a Kinder Morgan, Inc. (NYSE: KMI) company. The study also concluded that the additional gas capacity that NED would provide could generate $2.1 billion to $2.8 billion in annual savings going forward for New England electric consumers under normal weather conditions.’

The glaring problem with this study is none of the gas in the proposed pipeline will be going to homes along its route.   It terminates at a gas hub, with connections to other pipelines headed for coastal export facilities and land-based export pipelines to Canada.

Should any of the gas actually make it into homes, don’t forget, FERC has approved passing pipeline costs to consumers.

Reuters’ Julie Edwards reports, the dramatic price increase was a result of “critical weaknesses in the natural gas system” that supplies the Northeast.

Edwards wrote that the frigid temperatures placed an intense demand on natural gas pipelines to supply homes and power plants with energy. However, the construction of pipelines to deliver natural gas has not kept pace with the natural gas supply. According to Edwards, while natural gas drilling has increased, “a lack of pipelines has left some areas vulnerable to shortages this year and potentially for years to come.”

While it is true there were problems with natural gas supplies during the 2013-2014 winter months, it was not due to the lack of pipelines.  It was due to the mechanical failures and design flaws in the existing pipeline infrastructure.

Per PowerMag.com:

Many outages during the event—including a number in the southeastern U.S.—were otherwise “the result of extreme cold weather that was below the design basis of generating units,” the report notes. This was despite improvements made in winter preparation activities by generation facilities since February 2011.

PJM, the electricity system operator (ISO) responsible for the Mid-Atlantic region, experienced record demand and simultaneous high forced-outage rates of generators due to mechanical failures.  Of the estimated 19,500 MW of capacity lost due to cold weather conditions, more than 17,700 MW was due to frozen equipment.

If the current pipeline system is operating at 54% capacity, much of the problems experienced during the “Polar Vortex” were due to mechanical failures, and enhancing flexibility and capability then why the push for more pipelines?

Because the current pipeline are not connected to export facilities. All that gas is just waiting to be exported to make all those profits.

 

© 2015 by Dory Hippauf

 

 

 

 

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3 comments

  1. I would love to see an expose on the big energy company’s plans to “decommission” old natural gas pipelines and their conversion to highly flammable explosive NGL’s (Natural Gas Liquids). K-M plans to “convert” 964 miles of a 70-year-old pipeline to transport up to 400,000 barrels per day from the fracking fields of PA and Ohio to the refining and export terminals in LA and Texas.

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